Point/Counterpoint from chapter 16. Take a stand. Do you
agree or disagree? Write a minimum of one paragraph.
Chapter 16
The Hierarchical Structure: The Superior Format
Point
Yes The hierarchy is the enduring foundation for how MNEs
optimally arrange the roles, responsibilities, and relationships of
its structure for a simple reason—it is the superior format for
doing so. It sets a clear chain of command, functional span of
control, effective allocation of authority, and precise assignment
of tasks. It specifies the ideal degree of rules, routines,
policies, and procedures. Its vertical and horizontal
differentiation spells out, as we see in Figure 16.8, who’s who in
the organization. It effectively organizes planning, coordination,
and control systems. An advocate of the hierarchy, Harold Geneen of
ITT, argued correctly that it “makes people as predictable and
controllable as the capital resources that they’re responsible
for.”65 The hierarchy’s strengths rightly made it the sine qua non
of the professional management model since the early twentieth
century. Given the strong preference for hierarchical organizations
in countries such as India and China, it will flourish through the
twenty-first century. While neoclassical structures emerge here or
there in the West, the East has many companies whose lofty leader,
many rungs removed from the factory floor, uses a hierarchical
structure to command and control activity. Ongoing Refinements
Contemporary technological, regulatory, and competitive trends, we
agree, have interesting implications for organizing a company. We
concede that as environments change, so too must companies’
strategies and structures. However, the Counterpoint’s call to
discard the classical principles of the hierarchy strikes us as
reckless. Yes, gaps emerge in the hierarchy, but managers need only
reengineer processes to fill them. Powerful programs, like Total
Quality Control, Six Sigma, and the Balanced Scorecard, effectively
modernize the hierarchy. Fine-tuning workplace arrangements through
these and similar methods equips the organization to meet the
challenge of changing markets.66 What then, you ask, do we think of
the neoclassical alternative of a heterarchy that the Counterpoint
champions? We see radical tinkering with the day-to-day reality of
organizing international operations exhibiting commendable courage
but questionable judgment. Avoiding failure requires thoughtful
adjustment to the way organizations run, not the wistfulness of a
brave new cyberworld powered by newfangled social networking tools.
Leading Indicator Google, we submit, foreshadows the approach to
designing a classical hierarchy that respects the past but engages
the future. Google organizes its senior executives and work groups
by business function, with the largest functions represented by
engineering, product management, and marketing divisions. Despite
the founders’ description of Google as engineering-centric, they
see virtue in chaos by design. Insiders’ tales of orderly disorder,
purposeful disarray, and certain uncertainty signal its plans to
thrive on the edge of controlled chaos, all the while firmly
anchored in the functional order of a classical hierarchy. Rather
than retreat to the hierarchical conventions commonly found in
engineering-centric companies, such as DuPont and General Motors in
earlier times, Google stretches its hierarchy as much as possible.
Asked why, Larry Page (Google’s co-founder, CEO, and unofficial
thought leader) explained, “I want to run a company where we are
moving too quickly and doing too much, not being too cautious and
doing too little. If we don’t have any of these mistakes, we’re
just not taking enough risk.”67
Counterpoint
no Although imperfect, history is often a useful interpreter
of the present and predictor of the future. So, think back to the
early 1900s, when emerging technologies signaled to some the
superiority of the then-heretical hierarchy. One sees the same
today, as emerging technologies endorse new structural heresies.
Expanding digital infrastructures allows MNEs to organize their
activities in new ways, letting them efficiently diffuse
information and effectively integrate its flows. Today, just as a
century earlier, astute executives break free of the shackles of
the status quo, building organizations that leverage the expanding
waves of information flowing in, though, and out of the MNE. The
Crux of Change Unquestionably, the tried-and-true classical
hierarchy has virtues. Nevertheless, market trends spotlight its
increasing limits. It organizes workplace activities and
information flows in ways that thwart integration. Even when
turbocharged with matrix overlays and mixed adjustments, the
hierarchy slows relationships, confuses accountability, and
complicates collaboration.68 McKinsey & Company, for example,
report that struggling MNEs’ reliance on traditional organization
formats imposes a steep penalty. By leashing the intrinsic
motivation of employees, stifling adaptation, and squelching
entrepreneurialism, hierarchies impede common cause, discourage
innovation, and erode relationships.69 The Heterarchy Looking
around today one sees examples of networks, virtual organizations,
lattice structures, flat formats, or peer-to-peer formats. These
neoclassical forms exhibit the general properties of a heterarchy:
namely, “a large-scale, self-organizing community that sets free
unusually high degrees of energy and engagement— despite the lack
of clear or direct economic payoff for participants.”70 The
heterarchy is a constellation of actors and relationships that
follow from the interactions of technology, knowledge, social
relations, administrative routines, and legal ties. Figure 16.9
conveys these properties. A heterarchy is “infinitely large, never
balanced, never optimal and has unique perspectives for all
members.”71 Agents connect to others through direct and indirect
channels. “Information flows along multiple and intermediate paths;
this allows for multiple and overlapping points at which
information can be sorted and interpreted. It makes it possible to
process an abundance of information effectively.”72 By remedying
the bias toward instituting bureaucratic boundaries, the heterarchy
provides the framework to build a truly integrated enterprise. A
notable heterarchy is the open-source model, a software movement in
which program source code is given to volunteers who fix bugs and
design new features with no compensation. Operationally, it applies
basic rules to increase transparency, coordinate efforts, and
control performance. Programmers’ ability to monitor peer
production encourages collaboration. Similar situations unfold with
the ecosystems that power the Apple and Android “app” phenomena.
Others point to Technology, Entertainment, Design (TED), a
nonprofit devoted to “Ideas Worth Spreading,” which hosts
conferences that are then distributed in video format via the
Internet. Absent central direction, an informal, loosely coupled
network of several thousand volunteers has translated subtitles for
thousands of videos into more than 90 languages.73 The Test The
standards of organization are fundamentally shifting. The precision
of vertical and horizontal differentiation gives way to loosely
coupled, less-bounded neoclassical formats.74 Moreover, it’s
over-optimistic to think that one need merely apply organizational
band-aids, such as Six Sigma or the Balanced Scorecard, to update
an increasingly anachronistic, command-and-control classical
structure. Quite simply, “today’s big companies do very little to
enhance the productivity of their professionals. In fact, their
vertically oriented organizational structures, retrofitted with ad
hoc and matrix overlays, nearly always make professional work more
complex and inefficient.”75 Andy Grove, once CEO of Intel,
foreshadows how the apparent chaos of the heterarchy will reset the
presumed order of the hierarchy. A structure must encourage and
energize constructive confrontation in ways that let workers agree
and disagree, but, ultimately, commit to the same goals. The
challenge, he advises, is developing a structure that will “let
chaos reign and then rein in chaos.”76 In our view, the
neoclassical heterarchy, not the classical hierarchy, meets the
challenge of changing market situations, shifting technological
frontiers, and radical workflow resets.77