Circular organization: Organizational Form of the Future?

In November 2017, I already held an open-type seminar on Organizational Forms of the Future. Since then, I have repeatedly come across alternative forms of organization that are not of the classic pyramid-type or hierarchical type: 

  • For example when I attended the Collegial Leadership Workshop in Hamburg, where Claudia Schröder and Bernd Oestereich keep pushing the topic of self-organization and circular organization, and where I was able to complete my training as Agile Organizational Developer a year ago. 
  • And then again most recently three weeks ago, when I participated in an onboarding event of eurosysteam GmbH in Heidelberg. (Side note: From now on, I will be supporting the eurosysteam team as a freelancer, among other things to accompany organizations in projects involving the changeover to a circular organization.) At eurosysteam’s onboarding event, I learned about the change project of metafinanz (a company of the Allianz Group), which started in 2017 with the aim to create more customer proximity and to strengthen the personal responsibility of the employees. One of the results of this change project is a circular organization in which small business units act on their own responsibility and on a relatively independent basis with respect to the other units, respond directly to customer needs, and furthermore manage service circles and company management. As such, it is the reverse approach to the pyramid-type approach. 

What are the characteristics of a circular organization?

  • The organization chart has the shape of a circle and has to be read from the outer circle to the inner circles. The outer circle comprises many individual business units, each of which acts as a cross-functional, independent team and has direct links to the market or customers. On the way down to the innermost circle, there are support functions such as accounting, payroll and company management.
  • The outer circle: Individual business units, each consiting of a team that acts on an independent basis and is either responsible for a customer or customer segment or for a service or product. Such a team (approx. 5 to 9 people) is self-organised. It has full economic responsibility for its actions and has all the skills and abilities to ensure an end-to-end value creation for customers, a customer segment or a major customer.
  • The middle circle(s): Cross-functional teams to support the teams that are directly involved in value creation fulfill tasks such as accounting and payroll, which we are also familiar with from hierarchical organizations. However, we have significantly fewer of such units than in the traditional pyramid-type organizational charts. This is because skills and abilities, such as marketing and sales – that make a difference for the product or service, in terms of competition – tend to be found in the dedicated product team rather than in a cross-functional role. 
  • The innermost circle: Capital and the shareholders represent the innermost circle. They are there from the start, they provide the corporate vision and also the desire for a circular organization (otherwise it will not work!). Then, they delegate several responsibilities referring to corporate management to the company's employees, but continue to assume rights and obligations that are required depending on the legal form chosen.

The company is led from the outer circle to the inner circles. Even company management is controlled, at least in part, by the independent, customer-facing product or service teams. They can specify what services they want management to provide so that they can contribute to value creation in the best possible way.

Why all that?

The most obvious reasons for having a circular organization are the proximity to the market and the resulting ability to respond to changes in the customer base more quickly as well as encouraging employees to assume more responsibility in the independent teams with economic responsibility.

What are the pitfalls in the change process toward becoming a circular organization?

  • Well, you need patience. Looking at metafinanz, you can see that it is rather a process of years, not a few months. 
  • And it is likely that not all of the staff come along. This applies to both managers who do not want to return to a team structure and to employees who do not want to assume that much of responsibility.
  • Nearly all employees need to be educated in this respect. You cannot take for granted that employees involved have the requisite team decision-making skills, discussion and communication skills, or are familiar with relevant conflict resolution methods – these must be learned over a longer period of time.
  • You will need courage and confidence, because it is a very strong shift in paradigm.

Is a circular organization the equivalent of an agile organization?

My answer is: no. 

  • Agile organizations may be based on pyramid-type hierarchies, at least in part. This means that company management determines the strategy, decides which services and products are to be offered, and establishes independent product or service teams that work based on agile principles.
  • A circular organization is structured as I described above, but the independent product or service teams possibly use few if any agile methods. For example, they do not use agile boards and employ their own meeting formats that are not inherently agile.

Is the circular organization suitable for all companies?

Reality shows that it is rather the small companies that succeed in implementing a circular structure in practice. One example is 24translate Direct GmbH & Co. KG with around 150 employees. The largest company I know with a circular organizational structure is metafinanz Informationssysteme GmbH with approximately 800 employees.
I am convinced that we will hear and read more about this form of organisation in the future. It may even be a solution to the challenges of your business!

This text first appeared in my newsletter 'Innovation on Wednesday'. It is published every other Wednesday. For subscription click here

Further reading and watching:

Andrea SchmittInnovationstrainerinAm Mittelpfad 24aD 65520 Bad Camberg+49 64 34-905 997+49 175 5196446
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