Organizational structures give insight into the culture of a company, its decision-making process, and, most importantly, where leadership’s priorities lie. As a company evolves during its journey from a start-up to a small- to medium-sized business and later to a large public or private organization, it goes through many iterations of its organizational structure. These disruptive changes are driven by both internal factors such as leadership changes or employee turnover and external factors such as marketplace dynamics. As these structural changes can lead to varying long-term business performance, finance professionals have a stake in understanding and guiding business leaders through these transformation efforts.
In his book Reinventing Organizations, Frederic Laloux looked at the evolution of organizational structures and divided different structure types by color:
- Red: A central figure holds ultimate decision-making power, like a wolf-pack structure.
- Amber: A hierarchical pyramid structure has leaders who mandate formal roles and stable processes, like the Catholic church.
- Orange: The entity is structured around innovation, meritocracy, and goals such as profitability, as in most multinational corporations.
- Green: This structure is focused on empowerment and providing value to all stakeholders, rather than only shareholders, and has an egalitarian management style, which a few organizations such as Starbucks, Southwest Airlines, and Zappos have embraced.
Currently most organizations utilize a mixture of Orange and Green structures, but we’re on the cusp of another stage of evolution. Next-generation organizations have employees that are focused on having a shared purpose, with each member of the company working toward a common goal and able to clearly articulate how his or her tasks meet customer needs. This concept is the cornerstone of a Teal organization, which is characterized by self-organization and self-management in a decentralized structure where small self-governing teams work together for a common organizational goal. Companies are currently seeking to evolve by modeling themselves after this new structure.
MANAGING CHANGE
Organizational changes are disruptive, take a long time to implement, and consume resources that could otherwise have been better utilized to improve core business performance; the success of such a change depends on whether leadership can shift the mind-set of its employees to adopt this new structure enthusiastically. The larger the organization, the harder it is for leadership to make such changes successfully.
Small business organizations are uniquely positioned to embrace this Teal structure that could help them to improve business performance and compete for the best talent. And since Teal is scalable, companies can embrace it at an early stage, leading to minimal disruptions as the company grows larger.
So, what makes Teal unique?
- Self-managing teams: Does this mean there’s no manager? Yes and no. Teal organizations operate on the principle of peer relationships, wherein everyone has decision-making power over his or her task but is also accountable to coordinate with others to get the required support to achieve success. In short, employees manage themselves without anyone in a managerial position micromanaging their day-to-day efforts.
- Expressive freedom: An environment is fostered wherein employees are capable and willing to express themselves, leading to creativity, passion, and productivity.
- Evolutionary purpose: Employees in a Teal organization work toward the goal of fulfilling their end users’ or customers’ needs. Tasks are prioritized and decisions made based on whether the outcome is likely to help the company meet customer demand in the most productive manner. Thus, a Teal organization is dynamic and constantly evolving to respond rapidly to customer feedback in a shifting marketplace.
TEAL AND SMALL BUSINESSES
But is Teal aligned with what’s required at small businesses focused on growth at lower costs? The short answer is an emphatic yes. How do these elements of Teal contribute to better business performance?
Self-managing teams: Hierarchy isn’t conducive to dealing with complexity. Have you wondered whether senior management is best suited to make decisions by relying on a few charts and arguments that have been presented to it by subordinates during a brief meeting? In contrast, if an organization has self-managed teams that are structured as autonomous business units with a common purpose centered around meeting their customers’ needs, then the teams have the knowledge to make wise decisions that are more likely to meet market demands. There are still support functions in Teal, such as IT and accounting/bookkeeping, but they typically have minimal head count.
Expressive freedom: When employees are engaged, it leads to higher performance and productivity at the company. But how do you keep people engaged? Engagement happens when employees believe their work has a purpose and they feel comfortable being themselves in the workplace. Organizations often encourage employees to conform their identity to certain common standards with the hope that such standardization will lead to better control over personnel. But when employees are trying to pursue a normative form, their focus is more on fitting in and less on being the best professionals they can be.
Evolutionary purpose: Change is the one constant in the world of business. Companies either evolve or die. How often have we seen mission statements and strategic plans go up in smoke soon after they’re devised? Adaptability is even more important for small businesses, which must constantly reinvent themselves to compete and survive in a competitive market.
A Teal organization is well-positioned to respond nimbly to turbulence because of its self-managed teams with decision-making power. These teams constantly respond to what’s happening in the market and listen to customer feedback, causing the organization to evolve constantly.
Although the Teal model is based on these three primary characteristics, an organization doesn’t need to have all three to reap the benefits. The journey to the Teal paradigm can be a slow evolution, but each stage of transformation offers different benefits.
In fact, many organizations that practice Teal, such as Patagonia and Morningstar, don’t have a pure Teal structure but have put into practice certain Teal characteristics. There’s no reason for an organization to overlook at least certain aspects of the Teal model and to realize the impact on a smaller scale before embracing it fully across the entire organization.
April 2020
