Silicon Valley Secret: Innovative Organizational Structures

Much has been written about the distinguishing characteristics of the organizational structures deployed in Silicon Valley.  In some cases, the formal boundaries of the organizational chart have not been very different than those used for decades by companies outside of the Valley.  For example, Thompson reported that Google’s corporate structure was relatively traditional, apart from a few unique top-level positions such as Chief Culture Officer and Chief Internet Evangelist, and featured an executive management group at the top of the organizational chart that oversaw the usual functional-based departments such as engineering, products, legal, finance and sales.  The functional-based departments each had their own smaller, more specialized, units and the internationalization of sales activities was based on geographically organized branches focusing on the Americas, Asia Pacific, and Europe, the Middle East and Africa.  In general, however, scholars and managers have been fascinated by several distinguishing characteristics of Silicon Valley organizational culture including flatter hierarchies, greater decentralization and autonomy, flexibility and adaptability, and tight and intentional linkages between organizational structure and culture.

In the 1990s, Teece described a “high flex ‘Silicon Valley-type firm” as a company that would have shallow hierarchies, significant local autonomy and a resistance to hierarchical accouterments of seniority and rank and functional specialization.  According to Teece, decision making processes in these companies were usually simple and informal, with key decisions typically being made by the founders during the early stages of development, and an effort was made to ensure that communication and coordination among functional-based groups was relatively quick and open.  Teece noted that while these companies were likely to be highly innovative they often labored under severe resource constraints, particularly with respect to availability of capital, and the most successful companies were those able to strategically overcome those constraints through effective use of outsourcing and alliances.  A preference for flatter structures within organizations that thrive and survive on innovation is understandable given that hierarchies typically create bottlenecks that can slow the pace of progress and persons that have reached a comfortable position on one of the higher floors of a tall organizational structure may be reluctant to permit and promote initiatives that might make the existing way of doing things, including current products and services, obsolete.

Commentators have also noted the strong link between organizational structure and culture among Silicon Valley companies.  Apple, for example, has been held up for the way that it accentuated the importance it placed on being product- and engineering-driven by moving its design group out of the lower levels of the organizational hierarchy where it is often placed and positioning it near the top with a direct reporting line to the CEO.  In the same vein, Meyer explained in the late 1990s that “[i]n contrast to traditional firms where organizational structure defines the framework within which work occurs, Valley firms use the work to define organization's structure" and then went on to note that organizational structures in Silicon Valley could best be described as flat, flexible, permeable, and fluid.

Kashen argued that while technology and product innovation have certainly been important and impressive outputs from Silicon Valley, firms in that region have also been innovators in identifying and implementing new ways for groups of people to organize themselves and work together.  For example, he described one company that had abandoned the traditional functional-based organizational structure in favor of autonomous “pods” with at least one representative from each discipline that worked on its own scope of product and set and followed its own set of metrics and goals.  Leadership within each pod rotated based on the stage of product development so no one person had a management title.  Another alternative described by Kashen was referred to as “Holacracy” and relied not on top-down authority but on a “set of explicit processes and structures designed to achieve the company’s purpose”.  Kashen explained: “In a Holacracy, every role in the organization has an explicit, documented purpose and set of accountabilities, and roles exist separately from the individuals who happen to be filling them at the time. The core operating processes include two distinct meetings that occur on a regular (typically weekly) basis: Tactical (actions) and Governance (structure), each with a clear set of procedures. The Governance meeting is what most distinguishes Holacracy: it allows for explicitly changing the organizational structure on a weekly basis!  If a project or set of tasks is proposed that does not clearly fit into the explicit accountabilities of any current role in the organization, then the Governance meeting will resolve the ambiguity by assigning it to a particular role. This leads to much more clarity throughout the organization around who owns what, and who makes which decisions.”  Kashen also mentioned that some companies have apparently done away with formal management and hierarchy completely and allow leadership of projects to be determined organically based on whoever steps up.  In this type of environment there are no titles, reviews or promotions and raises and bonuses are determined through peer reviews. 

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