🔮 The Great Flattening

Good morning!

At the Uncertainty Project, we explore models and techniques for managing uncertainty, decision making, and strategy. Every week we package up our learnings and share them with the 2,000+ leaders like you that read this newsletter!

Over the last couple years, we’ve explored different threads related to strategy, decision making, and uncertainty. Sometimes we look for practical applications. Sometimes we keep it conceptual.

This overlap of theory and practice is important to test and monitor, though. Especially because successful experiments are very context-dependent. So in this article, let’s discuss the current context in technical companies (i.e. the current climate we’re facing), and how that might encourage (or discourage) experimentation with some new practices.

Those of you who work in tech companies are very aware that we are in a period of contraction, after a long stretch of expansion and growth. My colleague John Cutler has called this “The Great Flattening”, pointing out that middle layers of leadership have been some of the hardest hit. 

With layoffs, you hear arguments framed in the language of efficiency:

• Seeking leaner operations

• Less bureaucracy

• Flatter org structures to improve communication flow

Why is this seen as advantageous? Beyond the obvious bump to the bottom line? In a couple words: speed and accountability. The thought is that when accountable and empowered front-line teams can move forward faster (without seeking approvals from the layers above them every step of the way), then the organization gains a competitive advantage in meeting the needs of the marketplace: they’re faster, and more effective.

Yet with a flatter organization, senior leaders are sometimes expected to get more involved “in the details” - whatever that means. Done right, this can mean better front-line information informing top-level decisions. Done poorly, it can be a hell of micro-management.

So that’s what we refer to as “The Great Flattening". Why is it happening now?

In one sense, if we take a longer perspective, it’s not unique to our current times, this expansion and contraction (or boom and bust) cycle is just a characteristic rhythm of macro-economics. It’s just another context shift we adapt to.

But the level of macro-economic uncertainty does seem especially high right now. You’re reading it in your news feed every day, and hearing it in Wall Street quarterly earnings reports, as well. CEOs saying that: 

• Uncertainty around inflation has paralyzed investment

• Skills shortages have slowed hiring

• Questions around the impact of AI have muddied strategic choices

Without strong conviction on a new bold vision (and with money tighter than it was 5 years ago,  i.e. higher interest rates), executives are pitching efficiency as their current strategic pillar. They feel that efficiency gains can enable any response, despite the uncertainty they face. This is how they are choosing to adapt to the new context.

What would some good adaptations look like? Something that achieves efficiency gains, yet strengthens organizational capability at the same time?

Good “flattening” would pursue:

• High quality, decentralized decision making, possibly with a decision architecture

• Leaders with strong understanding, and ownership, of the org’s operating model

• Building more independent, empowered teams, accountable for outcomes

• Growing capable strategic decision makers at all levels (including the front lines)

• Emphasizing “outside-in” sense-making at the front lines, to inform decisions

• Strong ability to communicate about local uncertainty, and how it influences decisions

Let’s explore each of these:

Decentralized Decision Making

When top leaders build out a middle management layer during periods of growth, they expect that these leaders will drive, own, and support decision making across their teams. This communication burden between those leaders and the team leads is one cause of delay and bureaucracy. Speed and accountability (for outcomes) takes a hit.

So to “flatten” effectively, team leads need the decision authority to choose how to pursue outcomes, within their team’s charter. If the team leads are not used to this, they will need support, guidance, and encouragement. Even better, a decision architecture can be crafted for the organization, and good patterns can help drive new habits.

Operating Model Ownership

When top leaders flatten out the hierarchy, there will be more activity happening than they can effectively follow. Where they previously relied on mid-level leaders to proxy for them, they will now need to rely on their operating model - the system that provides scaffolding for strategic choice, planning, execution, and feedback. 

Some leaders are reluctant to redefine their role as “creating a great environment for others to thrive within”. They relish the command-and-control dynamics of decision making and giving orders. They see people development (rightfully) as a key contribution, but operating model development as something left to the process or operations geeks.

But when you “flatten”, a leader can’t stay on top of everything: they have to rely on the system. System performance drives business performance. Changing the system is higher leverage than sponsoring a single change driven in the system. This is not an easy mindset shift.

Independent Teams

A “flatter” organization will be composed of many teams. Teams form the atomic structure of the organization. Their ability to perform - at a high level - will be constrained by dependencies on other teams. If teams can independently deliver business value (i.e. with minimal coupling to other teams), the speed of delivery will likely offer a competitive advantage to the organization. 

This independence is devilishly hard to accomplish, however. Forming independent, high performance teams is a skill and an art, and a business that approaches “teaming” as an organizational capability will learn this skill, and develop this art, more effectively. A flat organization needs teams that are capable of delivering business outcomes. These choices (of team charters) are highly context-dependent, and should be driven by strategic intent.

Teaching Strategic Decision Making

In a flatter organization, empowered teams take on more responsibility for decisions. This might not be a natural reflex for team leads who are more used to receiving decisions than making them. Good “teaming” often crafts teams that own a “product” of some kind, that conceivably delivers value to a “customer” (external or internal to the organization). This is important because authority for the decisions about value delivery to “customers” thrusts these team leaders into the realm of strategic decision making. 

Teaching techniques, methods, and practices for strategy development will give team leads the skills to be truly empowered through their strategic decisions. We can’t assume that a team lead that has focused on execution excellence (and succeeded!) for years can suddenly produce robust strategic decisions. Build the organizational capability into the operating model.

Continuous Sense-Making at the Front-Lines

One rationale for empowering front-line teams with decentralized decision making is that “they have access to the best information.” In theory, they should have the freshest, least diluted, and most thorough information about the value that they provide to their “customers” (i.e. those that consume whatever they make). 

But teams with a culture of focusing more “inside-out” than “outside-in” (i.e. teams that pride themselves and what they build and how they build it), might struggle to shift into advanced “listening mode” with their customers. And it’s not just a new task or two: a flattened organization is expected to be more responsive, more adaptable, more competitive… and this implies a balanced emphasis on discovery and delivery.

Uncertainty Management

If one of the motivations for flattening the organization is to better address the uncertainty shrouding us, then we might as well try to get better at communicating about uncertainty. Front-line empowered teams will do their best at sense-making, yet still face many known-unknowns. They will be asked to make strategic decisions, despite the open questions, and will also be asked for their rationale on those decisions.

This is hard. Even the strongest, most experienced decision makers struggle to explain choice in the presence of uncertainty. For new leaders, with new responsibilities for strategic decisions, this might feel overwhelming (especially with the power imbalance that comes with leading on the front-lines).

Actively managing uncertainty brings visibility and communication advantages to the organization. When this is folded into the decision architecture, continuous sense-making can trigger active updates to uncertainty, which can drive dialog around the hypotheses behind active investments.

So your organization is flattening. 

How can you get started, putting some ideas into practice?

1. Make your teams more independent - Revisit the charters of all your active teams. Improve their alignment to customer-based outcomes. Model them with Team Topologies, to clarify their core purpose. Consider your current challenges and the strategic direction you are taking - are the teams constructed to tackle the biggest challenges? Independently? Empowered to choose tactics to pursue the strategic intent?

2. Build a Decision Architecture - Acknowledge that front-line leaders need help to produce high-quality decisions. Craft and deploy practices that build collaborative dialog and exploration into decision making. Clarify the decision authority. Teach the techniques, support the information flow, and talk about the nuance between “commitment” and “continuous evaluation of hypotheses”.

3. Teach Strategy Development - Strategy is not planning. It’s not choosing a set of desired outcomes as goals. It’s an exploration of possibilities <link>. It’s the building of a shared understanding (and acknowledging what is not yet understood). It’s making trade-off choices, and communicating that some things should not be pursued (at least right now). It’s about writing a reference narrative <link> and soliciting readers to help identify risks. These are likely new concepts. Teach them.

4. Introduce Uncertainty Management - Treat this as a new capability, one that is different than risk management. Recognize that dealing with uncertainty requires informed judgment, and informed judgment depends on continuous discovery and sense-making (at the front lines). Use a combination of reference narratives (for strategy) and subjective probabilities (for assessment of information) to help communicate strategic decision and choice.

And this discussion of subjective, informed judgments brings us back to AI - one of the cited factors driving “The Great Flattening”. 

While there is no doubt that the impact of AI is uncertain, AI offers new tools that help us collect information to reduce uncertainty, faster. AI should help teams explore decisions faster, with greater depth. But this information must be rooted in the teams’ local context, for it to be meaningful. All the books that have ever been written in the world are no match for a fresh piece of local information.

It’s when this information supports our understanding - our ability to derive meaning from our environment - that we feel confident in our actions. This is why you’ll always want a human-in-the-loop, for strategic decision making.

Vaughn Tan has written beautifully on this idea of meaning-making:

In a flatter organization, leaders at all levels are accountable for making subjective judgments about the relative value of things, and striking a balance between value-to-the-business and value-to-the-customer. “The Great Flattening” demands that we take strategic decision making out of the corner office, and make it an organizational strength from top to bottom.