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Why Corporate Hierarchy is Important

CAN has experienced a lot of growth over the last 4 years. From 2010 to 2011 we experienced 508% growth, and in 2012, while we were focused on improving our infrastructure, strategies and processes, revenue still grew 166%. This growth has required a lot of changes. All of our employees have had to grow as leaders, technicians and businesspeople. And our culture, processes and systems have had to mature. I wanted to make sure that CAN is prepared for more growth in 2013.

To prepare I spent 2012 asking, “What do I need to know to grow my company from less than 10 employees to 50 employees?” The question was less about the number of employees and more about how to grow from a startup to an established company.

I knew that a company with 4 employees was different than a company with 50 employees, but I wasn’t sure about the details. Books, conferences, podcasts, associations, coaches exist for people trying to start a company or run an established company. Unfortunately, I struggled to find resources about how to go from a startup to an established firm. Only 4% of the roughly 23,000,000 companies in the United States have more than 10 employees and/or $1,000,000 in revenue. So it makes sense that there are more resources on how to start a business than to grow a business. It is also unfortunate.  With more educational resources more people might be able to grow their businesses past 10 employees and/or $1M in revenue. Then the 4% would be the 10% or 25%.  Thankfully CAN has made it into the 4%, but we still have a long way to go until we reach 50 employees.

The best answer to my question surprised me,  I needed to create a managerial accountable corporate hierarchy.  I received many other ideas, but as valuable as the need and knowledge to design the right corporate hierarchy.  In future posts I hope to write about more of the great lessons I learned in 2012, such as;

  • Having regular meetings for daily updates, monthly training, and quarterly strategy development.
  • Creating and maintaining a rolling cash budget, so that planning becomes a process instead of an event.
  • Using a two-page business plan to align every employee, their decisions and actions, to the future of the company.

At first, I was very resistant to the idea that CAN needed a corporate hierarchy.  CAN is a technology company in a brand new industry, Data Science, run by a 25-year old CEO and his 24-year old partner. We didn’t need a corporate hierarchy. But as CAN has grown the need for managers, accountability and corporate hierarchy have become more obvious.

At first, I was tempted by other ways of organizing people. I was attracted to egalitarian structures, where everyone works together and everyone is accountable for the organization. I shirked at the idea that people, especially my people, needed a manager. Thankfully, one of my mentors taught me a valuable lesson before experience taught it to me.

The lesson is that people naturally sort themselves into strata based on their values, commitment, knowledge, skills, timeline, abilities, intelligence, and emotional intelligence. Humans have been doing this for thousands of years, e.g. Tribes. We like to think that everyone is just like us, the truth is that people are different.  A good corporate hierarchy allows common people to accomplish uncommon things, by allowing people focus on what they do best.

Have you ever been bored at work? Have you ever been overwhelmed or confused? This is because you were working below or above your capabilities.  You were working in the wrong strata of the corporate hierarchy.

Your capability = your problem solving abilities + values & commitment + knowledge/skills

Problem Solving Abilities: According to Kathryn Cason and Elliott Jaques there are only four methods that people use to solve problems:

– Declarative Processing is when a problem is solved using a single idea or concept.

– Cumulative Processing is when a problem is solved by combining multiple ideas or concepts, none which alone is sufficient.

– Serial Processing is when a problem is solved by sequence of ideas or concept, with each one building on the previous.

– Parallel Processing is when a problem is solved using multiple lines of serial processing. Parallel processing allows the problem solver to rank multiple paths from possible solutions, select the best path, and borrow ideas from lesser paths to build and defend the best path.

The complexity increases as problems move from concrete to abstract, and as the timelines become longer.

Values and Commitments: People have different values and commitments, at different levels of intensity. When designing an organization it is important to know your people values and commitments. Our values and commitments determine our strengths and to what level we perform. For example, not many people have the commitment required to be a salesperson or executive.

While it is popular, or at least easy, it is not true that people are born strengths and that they no control over them.  We have control over our strengths.  While we do have natural talents, our values and commitments determine what strengths we development. Managers and leaders need to attract followers with the values needed to excel at a position, and continually align their followers to the values of the organization.

You need to ask yourself, “Does each individual in your organization value the work that they are doing?”

Knowledge and Skills: Human work requires a combination of knowledge and skills. Knowledge is what can be articulated verbally, mathematically, visually, or through other symbols.  Knowledge alone is not enough. Without skills, knowledge can only produce computations. Human work is about human discretion, not predictable repeatable results. Skills are the things that we can do without thinking. Skills free up brainpower so that we can infuse knowledge into our unconscious to make judgements and be creative.

The more skills and knowledge that a person has the more creative they can be, and the greater their ability to handle rapid changes and uncertainty.

When properly designed, the right corporate hierarchy allows people to focus on the work that fully engages this capabilities.  It is important to select the right corporate hierarchy because it is difficult to reverse and is requisite to creating a sustainable and profitable company.  That is why CAN carefully considers our organizational structure and takes our time adding new positions to the structure. We never create a position to satisfy someone’s ego, or address a temporary need. When people are at the right level of the corporate hierarchy they are neither overwhelmed or underwhelmed. Once you have people at doing the right level of work for them, you can hold them accountable. Accountability allows an organization to mature to the point where results become relatively predictable.

I am available to discuss this post on Twitter at @GrantStanley and LinkedIn.


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