|The design of legal products
Because we can see the formal structures easily we tend to imbue them with significance, and assume the static connections between the formal structures are what matters. For example the org chart: this places every person in a firm in a logical, hierarchical relationship to everyone else, and can be neatly and easily controlled, that’s not to say many organisation charts become positively Byzantine.
There is much management theory around the relationship of “spans” and “layers” optimal organisation charts no more than 5 layers of management; no more than 5 direct reports and so on. This, from People Puzzles, is pretty funny:
How many is too many?
Around five direct reports seems to be the optimum number, according to Mark and Alison, although there are some scenarios where up to nine can work.
When it comes to the senior team in a company, however, too many people reporting directly to the owner manager can really hold the business back. Alison recalls working with someone who had 13 people reporting directly to her. “She had to do 13 appraisals at the end of every year!” she says. “It simply wasn’t an effective use of her time.”
Witness the formalist disposition, when the most significant thing you can do is carry out a formal process. The ethos is this: look after the form and the substance will look after itself. Take care of the pennies and the pounds look after themselves. But this is to look after the pounds and assume the pennies will take care of themselves.
In any case, you can’t encode mandatory small teams and a flat structure. There is a mathematical relationship between them: the smaller the average team, the more management layers there must be.
And besides, this is to miss the map for the territory. An organisation chart is a static map of the firm configured in the abstract, in theory, before it does anything. This is how the machine functions when it is idling. Org charts are the plan you have before you get punched in the mouth. Formal reporting lines are often the most sclerotic, rusty and resented interaction channels in the organisation. Communications up and down them — usually reluctant, strained, for the sake of it, to fulfil formal, not substantive, requirements for order — are at best reactive to commercial imperatives, and derivative of them: the firm’s real business is done only when its gears are engaged, and that means its personnel communicate with those who are not in their immediate hierarchy. The business unit is a cog: what matters is what happens when it is engaged.
But as the complicatedness of our organisations has grown we have developed more and more internal “engines” which engage not with the outside world, but with each other, generating their own heat, noise and movement — frictions and vibrations which wear out the parts and fatigue the machinery — and which are lost as entropic energy. Of course, one needs legal, compliance and internal audit, but when those departments have their own operational infrastructure and, are themselves monitored and audited, the drift from optimal efficiency is pretty plain. Internal audit departments now periodically audit themselves. But who audits that function? Turtles to ahoy: we approach an infinite regression.
You can understand the wish to focus on reporting lines — formal organisational structure — because it can be easily seen. It is is legible. It is measurable. Auditable. It is tempting to attribute business success to it, especially for people at the top of the structure.
But it misses the organisation’s real arterial network: lateral interactions that cross the organisation’s internal and external boundaries: these are the communications that employees must make, whether or not they are recorded — communications between internal specialists in different departments and with the firm’s clients and external suppliers — to make commerce happen and move the organisation along. Note: it is in these interactions, themselves that things happen: it is here that tensions manifest themselves, problems emerge and opportunities arise, and that these things are resolved. It is not the drill, but the hole in the wall.
These are informal interactions. They are not well documented, and from above, not well understood. They are hard to see. They are not legible. Yet everyone who has worked in a large organisation knows that there are a small number of key people, usually not occupying significant formal roles — they are too busy getting things done, for that. These “super-nodes” know histories, have networks, intuitively understand how the organisation really works, what you have to do and who you have to speak to to get things done. These are the ad hoc mechanics that keep the the superstructure on the road.
Likely management won't have a clear idea who these “super-nodes” are, precisely because they do not derive their significance from their formal characteristics, but from their function.
They are the informal hubs of a multiple hub-and-spoke network. They earn their authority not from their formal position, nor their formal grading, but their informal reputation, earned daily, interaction by interaction.
A map of interactions is not a top-down, God’s-eye view. It disregards the artificial cascade of formal authority, in favour of informal credibility. It reveals the organisation as a point-to-point multi-nodal network, is a far richer organisation than that revealed by the org chart. This is how the firm actually works, and and inevitably the formal organisation will frustrate it.
Yet no firm I know of even considers it. Yet, with data analytics, it would not even be hard to do: Log the firm’s communication records for data to see where those communications go: what is the informal structure of the firm? Who are the nodes?
Typically, vertical, staff-to-manager communications don’t have those qualities. Reporting lines are more an interaction constraint rather than an indicator of productivity. They impede the firm from interacting freely.
The modernist theory is that the firm is a unitary machine that must be centrally managed and controlled from the top; therefore the more organisational structure the better.
The “agilist” advocates removing layers, disestablishing silos, and decluttering the organisational structure.
The agile theory is that risks and opportunities both arise unexpectedly, come from places unanticipated by the formal management structure, and therefore the optimal organising principle is to allow talented people at the the coalface the maximum flexibility to react to those risks and opportunities. Thus, the imperative is to have the best people, with the best equipment, in the best place to react skilfully. Those people aren’t middle managers, the optimal equipment isn’t the one that leaves the best audit trail, and that place is not the board room, much less the steering committee or the operating committee. It is out there in the jungle. the fewest number of formal impediments to their creative use by those people.
For a modernist, this is inevitably a scary prospect. The modernist view is that as long as the structure is correct the quality of the people in any of the positions on the organisational structure is immaterial as they have predefined roles to perform.
So to understand a business one needs not understand its formal structure, but its informal structure: not the roles but the people who fill them: who are the key people whom others go to to help get things done; to break through logjams, to ensure the management is on side? These lines will not show up in any organisational structure. They are not what James C. Scott would describe as legible. They are hard to see: they are the beaten tracks through the jungle: the neural pathways that light up when the machine is thinking. They show up in email traffic, phone records, swipecode data.