The evolution of organizational models: a look into the future under the banner of agility

Currently, most organizations adopt a hierarchical organizational model and within which each role is carefully defined and occupies a certain position in the corporate organizational chart. While such a model is the most common solution, it does not allow for drawing on high levels of organizational flexibility and agility, and strongly inhibits the ability to make decisions quickly, elements of fundamental strategic importance in the context of a VUCA (or BANI) reality

However, as Accenture has already pointed out in a recent report, agilizing an organization requires profound change that affects all dimensions of the company, such as its operating model and practices, leadership style, corporate culture, and performance management systems. 

Such general arrangements are embodied in various organizational models described in the literature. In the remainder of the article, we took a closer look at some of them, highlighting their characteristics, advantages and challenges related to their implementation in organizations.

We are talking about the “helix” model and the “fractal” organization model, recently explored in a Boston Consulting Group study, but also about the skills-based model, which in some respects has provided us with an important methodological basis as part of a project to redefine the organizational model in the retail sector. 

The “helix” model – the helix organization

According to McKinsey, the helix organizational model is an effective alternative to the increasing complexity of matrix structures. This approach separates the traditional managerial hierarchy into two parallel but independent lines of responsibility:

• One line focuses on developing the people and skills needed to do the job, overseeing the career path of employees, dealing with hiring and firing, and leading performance management (Capabilities management)

• A second line of responsibility is responsible for setting business priorities and providing day-to-day operational oversight, ensuring that business objectives are met. (Value-creation management)

In other words, in the helix model, an employee is accountable to a “value-creation manager” who sets function priorities and oversees day-to-day work, and to a “capabilities manager” who handles professional growth, performance appraisals, and hiring and firing decisions. Both managers have equal importance and power within the organization.

By disaggregating the hierarchy and ensuring that only one leader is accountable for a given set of responsibilities, it avoids the need for employees to simultaneously answer to multiple organizational figures with overlapping responsibilities (see Figure 1).

Figure 1 The “helix” model compared with the traditional matrix structure (McKinsey, October 2022)

In particular, by virtue of such a separation of responsibilities, the power struggles and conflicts often found in traditional matrix structures should end. This helps to preserve unity of command, reduce tensions, increase the speed of the decision-making process, and more effectively address the challenges that the matrix structure is intended to address.

According to the McKinsey study, the main advantages of adopting a helix organizational model lie in two key features:

• First, such a model helps companies that have already achieved team-level agility to make it a reality for the whole company, making resource allocation easier and more dynamic
• Second, it alleviates tensions between HQ and decentralized business units, allowing the latter a greater amount of autonomy in decision-making and more room for flexibility in reacting quickly to market changes

Of course, the challenges involved in implementing such an organizational model and maintaining it over time should not be underestimated. For its adoption to be successful, in fact, McKinsey stresses the need for the organization to make certain strategic adjustments:

• Create an internal talent market: This requires leaders to have detailed knowledge of employee skill levels. Capability managers will need to understand the current and future needs of the company (working closely with value-creation managers to understand business priorities), which new roles are opening up, which existing roles are changing, which new initiatives need staffing and when, and what skills are required for each role.

• Make resource planning transparent and effective: It is important to have sufficiently mature resource and workforce planning to enable value-creation leaders to forecast staffing needs (key knowledge, skills, and experience) and to give capabilities managers sufficient time to match supply with demand for particular skills and roles.
• Balance performance management between the two lines of responsibility: In a helix structure, the two leaders responsible for people must be aligned and willing to participate in employee performance reviews jointly. 

•  The processes behind appraisals, as well as hiring and firing, should integrate feedback from both capabilities managers and value-creation managers (although the former is ultimately responsible for aggregating feedback and communicating the appraisal). 

In particular, value-creation managers, who oversee employees’ day-to-day work, should provide feedback on the competencies of the people in their teams so that capabilities managers can identify where development actions are needed.

In summary, for a helix organizational model to survive, capabilities managers must learn to delegate decisions about the day-to-day activities of employees, while value-creation managers must recognize the important influence that the role of capabilities managers has on their team members, in terms of coaching and skill development. Ultimately, both types of leaders must recognize that they will achieve better results if they give up some of their control over people. If implemented correctly, however, the helix model has the potential to provide the organization with the flexibility to keep up with the rapid pace of market changes and technological innovation.

The fractal organization

Until recently, companies could compete successfully for customers or products on a global scale by focusing on aspects of scale and efficiency under the direction of strong centralized leadership. 

In the near future, however, the new winners will be those organizations that succeed in bringing their teams closer to the end customer, distributing and delegating decision-making power to conquer local realities and rapidly developing micromarkets.

This is the thesis supported by an interesting study conducted by Boston Consulting Group, which explores the concept of fractal organization as an organizational model of the near future in response to the increasing fragmentation of the global economy, which is   reshaping the competitive landscape. 

According to BCG, a growing number of companies that cannot take advantage of the benefits of scale production, i.e., innovative startups or companies acting locally, are beating their much larger competitors by exploiting a new source of competitive strength: the “fractal advantage” 

Why? What enables these companies to compete effectively in the global market?

The term “fractal organization” refers to an organizational model that departs from the hierarchical structure and centralized control typical of large corporations. This model is structured in such a way that units or teams within the organization operate with a high degree of autonomy and responsibility, enabling them to react more quickly to changes in the market and customer needs. 

Thus, this structure is reminiscent of fractals in mathematics (or in nature), which are characterized by the repetition of similar structures on different scales of observation, enabling the organization to be agile, flexible and resilient in the face of emerging challenges and opportunities.

The fractal model emerges from the need for innovation, speed, and responsiveness to local markets and changing customer needs, contrasting with the old business paradigm focused on scale and operational efficiency, driven by central leadership, below which lie various organizational layers. In contrast, fractal organizations are characterized by strong decentralization, with customer-oriented teams enjoying significant decision-making autonomy, and promoting real-time, transparent, multidirectional information flow.

Fractal organizations, in fact, respond to radically different organizational design principles than traditional ones, including (see Figure 2): 

• Roles, responsibilities, and relationships. Fractal companies are less focused on hierarchy and more on maximizing interactions, linkages, and connections between hierarchical levels, including customers and external partners. 

• Distribution of decision-making power. Fractal companies assign significant power to customer-facing teams, enabling them to make important decisions and adapt quickly to market changes

• Information flow and management. The: Fractal organizations promote real-time, transparent and multidirectional data access, overcoming data privacy typical of traditional organizational models based on scale, hierarchy and centralized control

Figure 2 The organizational design principles underlying the fractal model

(Boston Consulting Group. 2022. The Organization of the Future Is Fractal. May 2022. https://web-assets.bcg.com/38/3a/0cfd96cd4290842eacc48a7f9a6f/bcg-the-organization-of-the-future-is-fractal-may-2022.pdf.)

The Skills-based organizational model

As we have explored in one of our previous articles, in its most radical form, taking a skills-based approach to redefining an organizational model requires the “deconstruction” and “reconstruction” of work, a key emerging capability for organizations:

• Job deconstruction means reconsidering roles (jobs) to analyze their components (tasks), and determining which ones can be performed optimally by AI-based systems or talent from outside the organization, considering employees in terms of skills and competencies.

• Reconstruction means reassembling tasks differently, in new and more effective combinations. This is not only limited to new full-time jobs but also embraces alternative contractual or work performance forms, such as freelance and fully remote workers, gig workers, and contract consultants.

Of course, the adoption of a skills-based organizational model in such forms necessitates comprehensive and up-to-date skills mapping, and can be said to be the concluding stage of a much broader continuum of skills-based organizational solutions, which may start from a delimited intervention to a few key processes, to assessing the impacts of such a change on a specific organizational area. 

In particular, according to HR analyst and U.S. speaker Josh Bersin, numerous difficulties are associated with implementing a comprehensive competency model at the organizational level.

These include:

• The difficulty of structuring the architecture of the model, that is, identifying a comprehensive and functional set of macrocategories of skills for mapping, which must prove future-proof with respect to emerging skills related to the AI and new technology world. 
• The problematic nature of defining and naming individual skills: within such a taxonomy, which corresponds to a huge data set (tens of thousands of hierarchically organized skills) each formula or item is potentially subject to debate. Will one opt for “collaboration” or “teamwork”? “Java” or “java programming” or “java language”?
• The difficulties of customizing these huge datasets by business sector: energy companies have refining, manufacturing, and distribution expertise. Consumer products companies have brand marketing, product marketing expertise. Pharmaceutical and chemical companies have scientific, and regulated manufacturing expertise.
• Last but not least, once the competency model is defined, the need to verify the level of mastery of these skills, through the mapping process, raises additional issues, related to the choice of evaluation criteria to be used, the evaluating subjects and the frequency of the evaluation itself.

By virtue of these and other recognized obstacles, according to Bersin, organizations wishing to embark on the road to a skills-based organizational model should begin by focusing on a single process or problem to be solved, using the skills-based approach in a manner circumscribed to them. In this way, it will be possible, according to Bersin, to build a skills model delimited to a few organizational areas in order to gather data on how well the tools and methodologies used work, but also on the effectiveness of the governance mechanisms established for that process.

An important caveat in implementing a model and mapping of competencies in these ways concerns the need to involve the business early on in the work of managing, governance and updating these models.

One of the examples provided by the U.S. analyst concerns American Express, which adopted a skills-based approach to address a specific organizational problem: the high turnover that characterized its customer service department. In doing so, it first developed a skills model for this organizational area, in close collaboration with the leadership team.

In implementing such a model, they realized at Amex that the skills needed by sales and service teams were not typical customer service skills at all, but rather those of the hotel and hospitality industry. Amex treats customers as guests, so it began recruiting staff from the Ritz-Carlton and other companies in the hospitality industry. 

In addition, the company has used the skills model to identify better internal candidates and improve external selection by constructing assessments and interview questions in a way that is targeted to the assessment of skills established by the model. The skills-based approach, in fact, can make an important contribution to reflections on the make-or-buy of professional-technical skills, guiding decisions about which skills to develop “in-house” and for which it is appropriate to go to the market. This is a most valuable help when one considers that in-house development of such skills can be far less costly than finding them on the market.

Use cases similar to the latter abound and can cover different HR processes: in addition to recruiting, career development and compensation processes can also benefit from a skills-based approach. 

Conclusions

In an increasingly volatile, uncertain, complex and ambiguous reality, the evolution of organizational models toward greater agility is an inevitable process. Traditional models, however well-established they may be, can no longer effectively meet the needs for agility and flexibility demanded by the current competitive environment. 

However, it is important to note that the transition to these new organizational models is challenging. 

As noted above, the helix model presents significant challenges especially in relation to the cultural changes imposed on management by virtue of the separation of people management responsibilities from day-to-day operational responsibilities, a concept that can be difficult to accept for leaders accustomed to traditional hierarchical structures. Also not to be underestimated for its effective adoption is the need for constant alignment between the two lines of responsibility.

Compared to the skills-based model, in addition to a significant cultural change, from a technical perspective, organizations must address the complexity of mapping and continuously updating skills, as well as creating internal talent marketplace platforms, which requires, among other things, an advanced technology infrastructure for data governance.

Related to the fractal organization, another challenge is the need to redefine decision-making processes and ways of working. This requires teams to develop capacities for self-management and shared responsibility, which can clash with traditional structures that are still entrenched, as well as the need to balance local autonomy and global strategic alignment.

Net of the challenges, are these the right recipes for achieving real organizational agility, required by a competitive scenario that seems to reward not so much operational efficiency, but rather the ability to respond quickly to crises and changes, benefiting the future?