The Impact of Expert Networks Overpowering Traditional Authority Structures
Around 2016, Amazon assembled a squad to establish an application for all its chauffeurs, encompassing data about delivery schedules, climate, traffic, routes, and ultimate delivery sites. The duration and cost of this project remained unclear. Amazon desired swift development, thus they dispatched the team to a distant location - Minnesota. "Proceed," was their command to the team. "Construct it. Report back every six months on progress. Here's 40 employee-years. Advise if you need additional resources." The team had direct connections to appropriate sources of information within and outside Amazon. After a year or so, the team declared the job was progressing well, yet requested, and obtained, another 60 employee-years. The team ultimately succeeded in developing the application, following extensive testing with actual drivers. The application was integrated into all Amazon's vans. The work was gratifying. This epitomized a corps of competence in motion.
Upon completion of the project, the team leader departed Amazon and joined a significant health organization in Minnesota for what appeared to be similar work. However, the work turned out to be vastly different. He discovered himself devoting approximately 70% of his time forecasting unknown future performance and then defending and explaining diffs in current performance from previous forecasts. Consequently, there was hardly any time for the real work he was appointed to do. The predicament was vexing. This symbolized a hierarchy of authority in action.
Although hierarchies of authority were prevalent in the 20th century, today an escalating number of firms are being managed predominantly as networks of competence. Firms that predominantly function as networks of competence generally grow quicker with greater employee engagement than firms that are principally hierarchies of authority.
Hierarchies Of Authority
As depicted in Figure 1, in hierarchies of authority, there is merely one genuine leader. All others in the organization are accountable to, and subject to the guidelines of, someone in the level above. Interaction between vertical silos is limited, if any. These characteristics can substantially hinder coordination and innovation within such organizations. About 80% of public firms still operate in this manner. The majority of management articles and conference speakers are implicitly discussing firms that are predominantly hierarchies of authority.
In contrast to a network of competence, a hierarchy of authority lacks a clear direction, besides what the single leader at the top might propose. The unspoken goal is usually the self-interested goal of making money for the company, its executives, and its shareholders. In such organizations, statements such as "everyone is a leader" or that “the firm has a higher purpose,” are essentially fabrications.
Hierarchies of authority prioritize techniques, processes, frameworks, and directives. Human concerns, such as culture, values, and employee engagement, are not entirely ignored, but are considered "nice to have but not essential." This approach to running organizations was successful in the 20th century and contributed to significant gains in productivity.
The ethos of Frederick Taylor remained influential. Even Peter Drucker could declare in 1993 that Taylor was one of the four greatest thinkers of the 20th century.
For the most part, the discussions about management in conferences and articles today occur without acknowledging the distinction between hierarchies of authority and networks of competence. As a result, most of these discussions and articles are discussing firms that are predominantly hierarchies of authority, that is, yesterday's management. Endless rants about low employee engagement, limited innovation, lack of psychological safety, weak teamwork, and decelerating growth continue with little to no recognition that these are inevitable consequences of managing the firm as a hierarchy of authority.
Networks Of Competence
However, something has evolved in the last quarter century. The world has changed. The internet has given rise to firms with new opportunities for innovation, followed by customers with more choices, and ultimately to firms with the potential for new business models based on network effects, sometimes exponentially. Firms have begun realizing that networks of competence are better suited to the faster-paced, rapidly changing customer-driven marketplace of the 21st century.
As displayed in Figure 1, in networks of competence,
· No one is subordinate to anyone else. Everyone is interacting horizontally, ensuring that everyone can be, and should be, a leader.
· There are typically defined interfaces between teams to facilitate horizontal interaction naturally, resulting in autonomy, coordination, and innovation.
· A network of competence can only thrive if it has a clear direction, mainly the creation of value for stakeholders, particularly customers. About 20% of public firms now operate at least partially in this mode.
· The explicit customer focus in networks of competence has enabled the creation of exponential network effects.
In networks of competence, subjective concerns like culture, mindsets, values, and narratives are the primary drivers of everything that happens in the organization to ensure the coherence and direction of the organization's activities. Many of these firms are outperforming average in terms of long-term value creation and employee engagement.
In networks of competence, everyone can be, and needs to be, a leader.
In 1977, an attempt was made to rectify the issues with traditional power structures through a novel concept of "leadership." A Harvard Business Review article written by psychologist Abraham Zaleznik proposed that "leaders and managers are distinct types of individuals," without any concrete evidence. This unsolicited suggestion aimed to improve upon the weaknesses of hierarchical leadership structures. Unfortunately, this concept has persisted and continues to negatively influence management discourse.
On the other hand, numerous companies of all sizes have been exhibiting genuine leadership by adopting competency-based networks and growing at an accelerated pace with increased employee engagement compared to hierarchical-led organizations.
As shown in Figure 2, various sectors have exhibited this shift to competency-based networks, such as technology (Apple, Microsoft, Google), communications (Meta), retail (Amazon, Walmart), manufacturing (NVIDIA, Tesla, BYD), pharmaceuticals (Lilly, Novocure), entertainment (Spotify), cosmetics (Elf), private equity (KKR, EQT), and even encyclopedias (Wikipedia).
Furthermore, it's essential to read:
Why Leadership Plays a Role in 21st-Century Management
Why Agility in Business Demands a Switch from Hierarchies of Authority to Networks of Competence
- The success of the Amazon team in developing the chauffeur application highlights the benefits of managing as a network of competence, as this approach fostered innovation, engagement, and fast-growth, compared to traditional hierarchies of authority.
- Peter Drucker, renowned management thinker, acknowledged the impact of innovators like Frederick Taylor, yet contemporary organizations must consider shifting from hierarchies of authority to networks of competence to address challenges like low employee engagement and limited innovation.
- As demonstrated by various industries, including technology (Apple, Google), retail (Amazon), and manufacturing (Tesla), transitioning from traditional hierarchies of authority to networks of competence can result in improved leadership, agility, and overall business success, boosting employee engagement and fostering rapid growth.
