Building Horizontal Organizations
January 01, 2006
(To view graphics, click on Published Version.)
by Robert Francis Gordon
CEO and Managing Director
Dairy Farmers of Australia
In 2004, when I became CEO of Dairy Farmers of Australia, I faced a number of significant challenges, coming not only from within the business, but also from the entire national and international dairy industry. The sector was facing massive change in what was arguably a watershed period.
And, within the fast-moving consumer goods sector, which is traditionally recognized as fiercely competitive, consumers were becoming more and more sophisticated, with ever-increasing demands: seeking more value from the ultimate end product that met their wants and needs.
The sector was also witnessing dairy production declining, international farm gate milk prices skyrocketing to historic highs, and record global fuel costs. Added to that hostile external atmosphere, the company’s operating expenses were unsustainable. Financially, the company was not performing to its capacity.
There was unnecessary product proliferation and too much complexity. Organizationally, the company was largely siloed. Each function operated independently and was run by a general manager, sometimes competing with other functions for resources.
Bottom line: It was time for radical change. I decided that our best bet—indeed, our only bet—was to “go horizontal.” Howard Guttman’s White Paper on horizontal leadership offers a comprehensive definition of the concept. From my vantage, a horizontal organization means moving to an organization in which everyone operates according to a clearly defined set of decision- making protocols, where people understand what they are accountable for and then own the results. It means moving to an action- and results-driven workforce at every level—not one that waits around for instructions or trips over functional boundaries. It means giving employees the opportunity and skills to decide who needs to be involved in solving problems and making decisions, dividing responsibilities, then stepping aside to allow people to implement.
As I studied the situation at Dairy Farmers, I was convinced that our future hinged on greater speed-to-market than the hierarchical model that existed, reduced “hang time” for decisions, ownership of results and effective delegation, and a clear focus on the business and its customers. We needed a makeover, which is what the horizontal organization helped us to accomplish.
Fortunately, I was no stranger to the horizontal approach and knew what had to be done. I started out, as Howard Guttman recommends, by having my senior team go through an “alignment.” We came away committed to a new model, one that didn’t support managers running private fiefdoms. The team began working together more collaboratively—as peers, each with equal responsibility for the success of the overall business and with equal power to make decisions that affected it outside specific functional areas.
But change was necessary. Six of the eight senior executive roles changed during the period. The reinvigorated Executive Management Team met with the Senior Leadership Team that comprised the top 60 executives within the organization, and we repeated the alignment process. Going forward, we are all part of a team, sharing responsibility and authority. Politics are out and performance in. If anyone—on any level—doesn’t perform, it’s clear that they don’t have a future with the business.
Since those initial sessions, we’ve made great strides toward becoming a truly horizontal organization. The silos have been replaced by cross-functional business teams for each of our categories: milk, yogurt, cheese, flavored milks. Each team is accountable for the profitability of its category and operates fairly autonomously. They report back to my executive team periodically; they bring us into the loop when they have significant resource-allocation issues or need additional substantive funding. Otherwise, they are responsible for executing the strategy that we set together, and so far they’re doing a fine job.
We’ve revamped our financial reporting systems both internally and externally; we have a tighter strategy with investments confined to that strategy; we’ve identified high-growth, high-value brands and put substantial resources behind them. Most important, we’ve clearly identified major initiatives to start cutting costs as we work toward turning the business around. The ultimate objective being to generate shareholder wealth by improving the sustainable levels of business profitability.
There is no need for me to dwell on the mechanisms behind what we’ve accomplished; Howard Guttman’s White Paper provides a blueprint for cultural change. It is based on his company’s extensive experience working with my organization and many others, across four continents. Readers who make the trek to a horizontal organization will undoubtedly discover that, over time, it will bring renewed focus and vigor, along with higher levels of performance and financial success, to their business.
Building Horizontal Organizations
Why Go Horizontal?
Three years ago, Liz Claiborne’s Special Markets Business was in trouble. This operating division, which produced several brands of apparel, was underperforming. According to Lisa Piovano Machacek, director of HR for Liz Claiborne, Inc., the organization was disconnected from its customers, suffered from conflicting priorities, and had no clear goals. Turnover was high, morale low. And it wasn’t making the numbers.
A year and a half later, recounts Machacek, the organization had gone from underachiever to top performer. Sales volume, revenue, and operating profits were all up, while turnover had dropped significantly. Product development time had been slashed and partnerships with retailers improved. The results were so dramatic that the division became a model for the rest of the Claiborne organization.
How did the Special Markets Business come so far in so short a time? By “going horizontal.” It moved from the traditional hierarchical business model—divided into functional silos and requiring multiple levels of approval before decisions could be made—to a flatter, faster-moving operation, where cross-functional teams took responsibility for resolving business issues—and raised the performance bar to an unprecedented level. Figure 1 overviews horizontal versus hierarchical organizations. While reality rarely comes so cleanly delineated, the illustration highlights the basic differences between the two models.
Sponsors in the Right Place
During its troubled times, a new group president came into the Special Markets Business. She wasted little time in assessing the situation and developing a plan of attack. Her conclusion: The division needed to revolutionize the way it did business. This entailed tearing down silos, speeding up decision making, and transferring authority to those closest to the customer. It was a formula that had worked for her at a previous organization. The key involved shifting accountability and authority from senior management and functional heads to cross-functional teams.
Successful transitions from hierarchical to horizontal require a champion like the new group president at the helm. Without the support of the senior team, the effort flounders. Marty Kurtz, organization development practice leader for Guttman Development Strategies, recalls working with a major food producer in which the sales organization sought better cooperation with Marketing. There was a growing need for tighter coordination on product promotions and for reducing the time frame from concept to implementation when introducing line extensions. Senior management gave its half-hearted blessing to a joint sales and marketing initiative to form cross-functional teams to address the issues.
As Kurtz recalls, “We were called in to help put together highly responsive account teams. The teams did their homework and set the operating standards for success. They were gung-ho about the potential. As the teams’ ability to manage their piece of the business grew, their influence and capacity naturally expanded. However, rather than relishing the new-found accountability and initiative of the teams, senior functional managers became increasingly uncomfortable with their own ill-defined roles and perceived lack of control. They undermined the initiative by arbitrarily inserting themselves into team decisions and withholding resources. The teams’ enthusiasm turned to resentment and, finally, to indifference. Ultimately, the attitude of the senior management group caused the plan to fall apart.”
Ideally, the move to a horizontal organization begins with a top team that is fully committed to organization-wide change. But we have seen more than a few examples in which pockets of horizontal excellence exist within a hierarchical structure, below the senior-executive level. Johnson & Johnson, for example, is a highly decentralized, portfolio organization, with each business given considerable elbow room regarding structure and operations. Its Consumer Products Company is not an across-the-board horizontal organization, but this hasn’t stopped Linda Scard-Buitenhek, its vice president, cleansing platform, skin care. As she explains, “Whenever we have a high-priority issue in the business or a particularly complex or difficult situation or an initiative that cannot afford to fail, we put together a horizontal team to handle it.” A few years ago, when she headed up J&J’s baby franchise for Europe, Africa, and the Middle East, Scard-Buitenhek did just that. “The business had been relatively flat for several years and needed a shot in the arm to revitalize it,” she explains. With the support of J&J’s regional management, she created high-performance teams around the franchise, organized the resources, and secured the authority for them to make sweeping changes. Over the next couple of years, sales grew by over 25 percent; profits shot up 10 points; and the franchise grew in a number of key categories and markets.
What separates Scard-Buitenhek’s experience from that of the food producer we cited earlier? As Scard-Buitenhek points out, it’s top management’s support. “While J&J’s Consumer Products Company is not totally horizontal, the use of high-performing horizontal teams within the organization is encouraged by senior management. Whenever an important issue comes up, they now invariably say, ‘put together a team.’ They know it’s the most efficient, effective way to get results down the line.”
Aligning the Senior Team
The move to a horizontal model represents significant organization change. Beyond structure, systems, processes, and culture, the changes extend down to the basic molecular level of organizational life. Every team and every team member must rethink the answer to the question: What does it mean to be a player in this organization and on this team? For those about to cross over to the horizontal approach, the answer can be both exciting and intimidating. The old top-down model, with its silo thinking, is swept away. Employees are asked, often for the first time, to assume individual and collective responsibility for business results. In effect, high-performance, horizontal teams become mini boards of directors. In a horizontal organization, peer accountability replaces the boss-subordinate mentality. Underground conflict and game playing are out; the new norm is open discussion and transparency. The compass points of team members are oriented more toward moving the business forward and more toward “we” than toward “my function.”
Given the nature of the change, the move to a horizontal organization must begin with the top-management team. But, typically, senior executives are not suddenly seized by an uncontrollable urge to “go horizontal.” Instead, a company contemplates a major strategic shift or is confronted by a major business issue. A business challenge presents itself, one that interrupts the traditional management rhythms. Top-team members begin to sense that the old way of doing business is too slow, that it doesn’t harness the energy and brainpower of the entire organization, that it is inner directed rather than customer oriented. Gradually, a vision emerges of what the business could be but is not, and this propels the top team to find a way to turn vision into reality.
The journey toward implementation begins with the process of aligning the top team—getting its members to agree on five key areas:
- Business strategy
- Business deliverables coming from the strategy
- Roles and responsibilities at individual and department levels
- Decision-making ground rules and other related protocols
- Business relationships and interdependencies
In addition to these areas, a discussion of which is beyond the scope of this White Paper1 —a fully aligned team at any level in the organization can move to the highest levels of performance only when five other factors are in place: The team comprises the “right” players; team members are committed to the team “winning”—achieving business goals—over their own functional self-interest; every team member feels a sense of ownership or accountability for the business results that the team is charged with achieving; all team members are comfortable dealing with team conflict; the team periodically self-assesses its progress as a group, focusing on how it functions as a cohesive entity.
The personal interviews that we conduct prior to the alignment sessions and the subsequent data analysis give the chief executive and his or her team a clear, reality-based picture of how well, in fact, the team works together: Does the CEO own most decisions? Do the team members wait for their marching orders before making a move? Do they compete for resources—and approval from the top? Are people uncomfortable being straight up and direct? Do they speak with one voice in the meeting room but not at the water cooler? Is passing the monkey a favorite team sport?
“Yes” answers to these and other interview questions tell us that the team—and, by extension, the organization—is operating in a command-and-control mode and will have to travel a far distance to create a context in which teams are empowered to make decisions and assume responsibility for business results.
Unquestionably, the greatest difficulty faced by senior executives in such situations is to reframe their decision-making approach. “My biggest challenge,” says Vincent Pender, managing director, U.K.-based Johnson & Johnson, Consumer Ltd., “was stepping back and letting go. I had to learn from experience that delegation doesn’t mean loss of control. It means that leaders are likely to get greater power from teams; this takes them closer to what they’re trying to achieve.”
At the end of its own alignment, the senior team must look beyond itself to carefully think through the new organization structure and dynamics. How will teams be organized—by product categories, brands, or customers? How many teams will there be? What will they be accountable for? How much will a team member’s performance—and the rewards that follow— reflect not only his or her functional affiliation, but also his or her horizontal one? How will success be measured? It’s imperative that the top team have a clear vision of the new model before they begin to communicate it to the rest of the organization.
According to Lisa Piovano Machacek, the group president had five vice presidents on her senior team in the Special Markets Business, and they were the first to go through an alignment session. Afterwards, they laid out a preliminary plan for the new structure: Each of the business’s eight or nine brands would be the responsibility of one cross-functional team. They carefully thought through the makeup of the teams, who would lead them, and other key questions before moving on to the next step.
Conveying Goals to the Organization
Once the decision has been made to go horizontal, the rationale for doing so must be communicated, in an overview session, to those who will be serving on teams and other key functional representatives. Scard-Buitenhek calls this, “Finding the North Star: the business issue you want to resolve.” For example, “We are doing this because in order to meet our strategic goals we need to innovate on products at a much faster pace.” Or, “We have been losing market share for the past year; we need to reverse the trend.” Or, in the case of the Special Markets Business, “Our numbers are down; our customer satisfaction ratings have slipped; our turnover is up.”
Too many major change initiatives are couched in fuzzy objectives and great expectations. It’s far better to make a solid business case for the change and to let everyone know that this is not just another initiative du jour. Rather, it’s a new way of doing business—and everyone must enlist. Opting out is not an option.
Once the “why” has been plainly communicated, it’s time to paint a picture of what life will be like in the new horizontal organization: Teams will be fast moving; they will get consumer insights and translate them to new products and improved sales and account delivery. They will have the necessary resources. They will be authorized to make decisions without escalating them back up in the organization. Since all jobs require thoughtful action, they will not only be expected, but required, to contribute new ideas and to not worry about ruffling feathers.
This is also the time to talk about the steps in the transition, the time frames, the systems and processes that will need to be adjusted to ensure the success of the new model, and the new capabilities team members will have to acquire.
During this two- to three-hour session, count on plenty of questions. People are concerned about the impact this “extra work” will have on their “real job.” They’re curious about who’ll be in charge and how they’ll be evaluated. At this point, people are generally enthused but wary. At the end of the session, they usually have a conceptual understanding of what is being planned and why, but they need a firmer handle on the “how,” which takes us to step three of the transition process.
Constructing Ground Rules
When the senior team conveyed its intentions to stakeholders, it was done in a large-group setting. Now, that group is divided into cross-functional focus groups of 5 to 10 individuals in order to drill down and construct a detailed plan for moving to the new team structure. Among the agenda items for discussion and resolution:
- Decision-making authority and process
- Roles of team leaders/members
- Roles of functional leaders
- Accountability of members
- Conflict resolution/steps for closure
- Cross-team issues
- Performance management system/compensation link
Assuming that there are a number of alternative team structures available, top managers can use the discussion about structure as an opportunity to tap the best thinking of colleagues at the next level. There are no hard and fast rules here. The situation determines the best approach. In the Special Markets Group, the group president and her team had already made the decision to go with a team for each brand, so its focus groups began their brainstorming around the goals for each team, who should be assigned to them, who would make the best leaders, etc.
It’s helpful to provide the groups with a frame of reference for identifying and evaluating alternatives. For example: best practices that have worked for other organizations that have successfully gone horizontal. These might include: the average number of people on a teams; which titles, from which functions, typically make up the core team membership; which titles and functions are generally extended members; the characteristics of effective team leaders; recommendations for tying individual and team performance to compensation systems; other successful motivators; and so on. The groups can suggest modifications to these to make them more relevant to their organization, and each team’s work is shared with subsequent groups to stimulate idea exchange and avoid reinventing the wheel.
Each focus group is also asked questions similar to those posed during the senior team’s alignment session. The objective: determine how siloed the organization is at levels below the senior team, where decision-making authority resides, how clear people are about their goals, and how conflict is dealt with in the organization. This information will prove invaluable later on in the process, when the newly created teams are aligned and begin working together in this brave new world.
Training Team Leaders
It’s one thing to lead a team within a function, where the members have a similar knowledge base, are accustomed to working together, and, ultimately, are responsible to the same functional head. Leading a team of people who have never worked together before, have vastly different content knowledge and experience bases, and owe allegiance to senior managers who are often rivals for resources and power, is a completely new experience for many and often requires learning a new set of skills. What should they do when conflicts arise between team members? How do they make protocols work? And, perhaps most important of all, how do they hold team members accountable for results?
Most people, including leaders, are conflict averse; they have spent their whole life viewing conflict as a divisive, negative force and avoiding it at all costs. The leader of a horizontal team must learn to overcome this conflict aversion.
We begin the training by assessing the leaders’ current capacity to lead and preferred style of leadership, using an array of diagnostic instruments. We help them to understand the liabilities and payoffs of each leadership style—prescribing, coaching, collaborating, empowering. We then provide them with the skills to optimize their style and put them through a series of exercises to practice the new learning.
The horizontal organization calls for a player-centered model of leadership. The question team leaders must continually ask: How prepared are the team’s players to handle increased authority and responsibility? As teams proliferate and decision making becomes more decentralized, team members must be brought along to enable them to step up to the requirements of a horizontal organization. To do this, leaders must pay careful attention to each team member’s capabilities and skills and adjust their leadership approach accordingly.
One of the hardest things for leaders of high-performance, cross-functional teams to internalize is that getting results is no longer a solo act; team members, individually and collectively, share in the trials and triumphs. This requires a complete shift in mindset, letting go of the “story” that the leader has more power and more accountability than the rest of the team.
Aligning Business Teams
Liz Claiborne’s Special Markets Business moved from the alignment of the senior team to aligning its functional teams. This was an interim step taken by senior managers who were not quite ready to move directly to the brand-team structure. Putting each of the functions through an alignment paved the way for the move to the horizontal structure and prepared people for their new roles and responsibilities.
More typically, organizations move directly from aligning the senior team to aligning the cross- functional business teams. The focus is on the same five elements: strategy, goals, roles, protocols, and relationships. And it’s at this point that problems often arise. As Linda Scard-Buitenhek puts it, “You go backwards before you go forward. People hate it before they love it.” Team members may begin to feel discouraged in the face of real-world constraints and the need to play in a rigorously results-focused, transparent environment where peers hold peers accountable.
Scard-Buitenhek believes that, as teams begin to work in the new model, one source of early discouragement involves falling into the consensus trap in which everyone must agree on everything. Or, as Marty Kurtz put it, “Asking everyone on the team for their opinion just to make them feel good is nothing more than pooling ignorance. It compromises one of the most important objectives of going horizontal—to speed up decision making.”
This is why during an alignment session a good deal of time is spent developing decision-making protocols. “In the horizontal organization,” explains Kurtz, “fewer decisions are made either unilaterally or by consensus. The majority of the team’s decisions will be consultative, which is why it is critical to identify, at the outset of issue resolution, who on the team owns the decision and who will contribute information to influence the decision. The two should never be confused.”
It takes practice to work horizontally. Says Scard-Buitenhek, “It’s like learning to ski—once you reach a certain level of proficiency you take off and feel the exhilaration.”
Observing Team Process
It not only takes practice to reach the proficiency level mentioned by Scard-Buitenhek; it takes good coaching. It’s critical that newly formed teams receive feedback on their performance to help members avoid retreating to “backup” behaviors and old ways of doing things. We recommend that an experienced observer—one who has “been there and done that”—sit in on the first few team meetings, sharing his or her observations with the group before they risk veering off course. (In many organizations, this is a member of the senior team who has been assigned to mentor the new team through its first horizontal experience.) Red flags to watch for: Are some team members present in body but not in mind? Does the leader monopolize the discussion, act as the Grand Inquisitor, or play Solomon? Is closure not reached on issues that arise? Do people waltz around delicate issues? Have agreed-on protocols, such as “don’t accuse in absentia” and “resolve it or let it go,” fallen by the wayside? Do team members fail to call one another on such violations or on poor performance? Is there more “me” than “we” in the air?
When inappropriate behaviors and interactions occur, the observer must role-model the art of giving effective feedback; it must be clear, behavior specific, and depersonalized.
Assessing Team Progress
We learn best from our own experience—provided we monitor it. We recommend that, as it carries out its charter, each team continue to self-assess periodically. Simple is best. Take a few minutes at the end of each meeting to talk about the process that was used and whether or not the protocols were followed. This will ensure that lapses are caught and corrected early on.
It’s probably unrealistic and unnecessary for the team’s senior-level sponsor, or mentor, to sit in on every meeting. But having him or her present from time to time, to observe and offer feedback, is a good way to keep the team on track.
A more formal assessment should be carried out four or five months into the initiative and again one year after the formation of the teams. At this point, it’s a good idea to administer a questionnaire to individual team members asking them to “look into the mirror” and judge how well they are doing. Then, reconvene the group and discuss the findings and next steps.
Providing New Skills
Each team assessment provides an opportunity to ask: Which existing skills need to be refreshed, and what additional skills does the team need to acquire to heighten its effectiveness? Are certain team members viewed as intimidating, aggressive, and uninterested in others’ opinions? Behavior modification is in order. Others may benefit from assertiveness training; still others may need active listening or influencing skills. Or perhaps a lack of problem-solving and decision-making skills is holding the team back.
The commitment to go horizontal must be accompanied by an ongoing commitment to provide team members with the skills they require for assuming greater responsibility and for ratcheting up performance to increasingly higher levels. As part of what will become, in effect, mini managing boards of directors responsible for specific business results, team members must learn to shift their thinking from technical to managerial and from operational to strategic. They are being groomed to become the next generation of leaders, and investing in their training is one of the best uses of resources that the organization can make.
The New Accountability
In hierarchical organizations, accountability is often a zero-sum game. At worst, it’s either about finger pointing and placing blame; at best, about taking credit for making things happen. And accountability usually comes without authority; employees are asked to produce results in an environment over which they have little or no control.
Accountability in the horizontal organization is radically different. Peers hold peers accountable, asking: Who has the lead on this? Who should be involved? What risks and blockages do you see? What are you doing about them? What help do you need? When a milestone is missed, the question isn’t, “Why were you late?” It’s, “Can you help us understand what happened, what you are doing about it, and how we can keep it from happening again?”
The big difference: Everyone on a team feels that they have a stake in the outcome, and everyone is comfortable “going there”—to what in hierarchical organizations is a no-man’s land of someone else’s function or area of responsibility. The horizontal organization subordinates functional interest to achieving overall business results.
Linda Scard-Buitenhek attests to the powerful effect of this new authority and accountability. “I’m a results-oriented person and I’m also a people person. I am thrilled to see people getting results, and I’m thrilled when they are proud, energized, and excited about coming to work. High-performance, horizontal teams are the best way I know to get results, create momentum, and take organizations to a new level.”
Evolving to a Horizontal Organization
For organizations that would like to move from a hierarchical to a horizontal way of doing business, we recommend following these steps:
1. Align the senior team
Get agreement on strategy, goals, roles and responsibility, rules of engagement, business relationships; if going horizontal, clarify the business case and desired results.
2. Convey goals to the organization
Explain the case for going horizontal to those who will serve on teams and other key functional reps; describe the new organization and desired results.
3. Construct ground rules
Agree on number and composition of teams; responsibilities and accountabilities; and rules of engagement going forward, including links to performance management and compensation.
4. Train team leaders
Provide skills to lead teams, deal with conflict.
5. Align business teams
Cascade the senior-team model down through the organization.
6. Observe team process
Observe the newly created teams and leaders: Are they still aligned? Are they following the agreed-on rules of engagement? Is the leader in control?
7. Assess team progress
Four-five months after the creation of teams, check their progress against goals.
8. Provide new skills
Based on observations, do teams need additional training in influencing, conflict management, performance management, or problem solving?