Why your company works as it does

During my vacation, one of the questions I spent time thinking about is why companies function as they do. And why companies that are digitally born operate and “feel” different from traditional ones. Why companies that were different from the beginning tend to fall back into traditional patterns and become like traditional ones.

I realized that, of course, the patterns in organizations are the consequence of human nature. This drives many recognizable behavioral patterns. First, the formation of hierarchies. As I wrote a few years ago, the need to organize ourselves in hierarchies goes, according to some, back hundreds of millions of years in our evolution, long before there even were mammals. Much of the behavior in society and companies is driven by our innate need to compete and jockey for position in the vast number of different hierarchies that are available to us in modern society.

Second, and a direct consequence of the first pattern, is the need to exert power over others. A higher position in a hierarchy gives power and, unless checked carefully, the need to use that power for personal gain rather than the general good.

The third pattern is that humans rely very strongly on their own beliefs and have a tendency to operate based on opinions, rather than facts. To most of us, it feels like you’re losing face if something that you believe in turns out not to be accurate. And we’ll strive to realign reality with our beliefs to the largest extent possible and easily become defensive if we’re challenged with data that counter our beliefs.

These human behaviors cause traditional organizations to operate in the way they do, including the hierarchies, the bosses that demand to be obeyed even if decisions don’t make any sense and the general tendency to ignore inconvenient data that’s just staring you in the face. This is exacerbated by the fact that most organizations became successful because of their being different in some way from the rest of society. This “us versus them” mentality only reinforces our basic human behaviors.

The emergence of digital technologies, however, brings along a fundamental shift in how companies operate. At the heart of this fundamental shift lies the awareness of recognizing human behavior and not ignoring it (which many have done at their peril), but at the same time streamlining it to ensure that these behaviors generate the desired outcomes, rather than falling back into traditional structures.

These companies are so successful because they harness instinctive human behaviors differently. For example, hierarchies aren’t ignored but are to the maximum extent possible based on meritocratic principles. In addition, they’re structured to be temporary, rather than cast in stone.

Second, the desire to exert power over others is mitigated by employing empowerment and related mechanisms that limit the power of one individual over another. Rather than relying on a boss positioned in a hierarchy, every individual is free and expected to take responsibility for his or her own decisions and actions.

Third, these companies use data to continuously challenge beliefs held by individuals and groups and encourage alternative interpretations of data to avoid the organization getting trapped in groupthink and defensive around key ideas. For instance, most SaaS companies use A/B testing extensively – an incredibly effective tool to break down “shadow beliefs” in the organization.

Over the last years, however, I’ve come to realize that the difference between traditional and these modern, digital companies is fundamental and starts with the basic assumptions and culture underlying the organization. In response, over time, the scope of my work has gone from specific areas in software R&D, such as software architecture, product lines and continuous integration and deployment, to systems engineering and end-to-end R&D. From there, I included the operations part, including DevOps, DataOps and MLOps, and the front-end part of product management. More recently, I did work on business models, ways of organizing, business ecosystems and other topics not strictly in the scope of technology.

However, I feel that what’s lacking is a holistic and complete company and organizational perspective that includes not just the product and services scope, but all functions in the company, including general management, sales, HR and finance. Although my posts over the last years have provided puzzle pieces of this picture, it’s my intention to, over the coming months, provide a more integrated perspective with the intent of helping you, dear reader, to adopt the modern best practices and avoid the pitfalls that many traditional organizations get stuck in.