Trickle Down Business Strategy

In most traditional business practice both the source of signal and the lines of transmission are well defined. Ideas come from the top. People with job titles that are acronyms define and bless the signal, the message, the solution, the direction. Organizational hierarchies, reporting structures and chains of command define the transition, adoption, execution and motion patterns.

We might call this trickle down business strategy.

Trickle down business strategy has failed. It has been outmaneuvered. It simply cannot keep pace with the momentum and quickly shifting direction of our post-modern global economy. This is because trickle down business strategy lacks agility. Proponents of trickle down business strategy should have seen this because it has been in the tea leaves for ages. Smaller organizations have consistently out-innovated the corporate behemoths. Smaller businesses consistently beat their lumbering competitors in speed to market. But until recently, both the big corporations and the small start-ups failed to correctly identify the source of the agile advantage. As a result, as small businesses became successful they replicated the innovation structure and organizational hierarchy of the larger corporations they desired to become. They then lost their competitive advantage and became that lumbering beast they once competed against.

BusinessAgility_sm.pngSmall organizations are able to produce signals quickly and efficiently because of three key features:
Collaborative Signal Generation. Familiarity and institutional informality create an environment where signals (ideas) easily flow, morph and are evaluated.
Organic Transmission. Transmission patterns are only loosely defined (if at all). Destinations are generally known, routes are ad hoc.
Transparent Evaluation. Decision making authority and accountability are implicitly recognized and transparent.

Smaller organizations do not require the institutional formality of larger organizations because people generally know who each other are. If not known personally, then people are known by reputation and shared connections. Contrast this with larger organizations or overly formal organizations where sheer size means that introductions and communication of titles (and thereby pecking order) are among the first agenda items in meetings.

Smaller organizations typically have only loosely defined chains of command and then usually only for business necessities like HR reviews and hiring authority. In smaller organizations ideas are more easily shared and communicated among people with different titles because there is a shared recognition that the ideas pertain to the business, not to a reporting structure. Managers do not get bent out of shape if their directs communicate with other working groups without first consulting them. Contrast this with larger organizations where chains of command are strict and where the accepted truth is that all good ideas flow from the top.

Smaller organizations also have a key understanding of where decision making authority lies. Because of the ease of participation in creating signal and transmitting signal people understand that, in the competitive evaluation of ideas, decisions (sometimes difficult ones) must be made. In general all participants are OK with this because they have participated in the process. They understand the decision calculus and, even if they do not agree on the outcome, they understand how the decisions were made. Contrast this with larger organizations where even if employees are allowed to have input, they rarely know who actually makes “the decision” or how or why such decisions are made. This has a chilling and wilting effect on the signal generative powers of the organization. No one likes throwing their ideas into a black hole and hoping to one day see something come out the other end – wherever and whenever that may be.

Unfortunately the three factors above morph all too easily into factors revolving around people and personalities rather than organizational effectiveness. As successful small businesses grow, all too often those three factors become trickle down business process that goes something like this:
Formalized Signal Generation. Institutional formality requires that ideas from the original successful people are to be evaluated and implemented. They were right before, they’re probably right this time too.
Defined Transmission. Transmission patterns are explicit. Ideas come from the top.
Edicts from on high. Decision making authority and accountability is explicitly defined in formalized job roles and that role is probably not yours.

As the small businesses grow their ability to maintain their agility shrinks. Business practices that revolve around individual experts do not scale. They are eventually overtaken by a smaller organization that is more agile and are left wondering where they lost their ability to innovate and lead the market.

What large organizations and organizations growing into that large stage have failed to recognize is the benefit that they gain by growing. Larger organizations are able to tap into a human resources network effect that is simply unavailable to smaller businesses. This network effect states that the more participants there are in a system, the more valuable that system becomes.

By this account, big business should always be trouncing the smaller upstarts. But network effects are predicated on participation. If the employees of big business are bound by trickle down business process network effects are thwarted.

Enter Enterprise 2.0. The path should be clear.

Comments:

Very true! How do growing businesses maintain the profitable informalities without losing needed discipline, team-spirit especially at unit levels and true loyalty.

Posted by John Oyebanji on June 02, 2009 at 04:43 AM CDT #

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