Organization structures matter: how much ambiguity costs can your business afford?

Everyone who ever worked in a large organization, can probably relate to at least one of the following examples of conflicts that regularly occur in organizations:

  • A sales leader wants to close a deal with a low margin to meet her targets and to safeguard the relationship with the customer. The product manager does not want to sign off on the deal, because she wants to protect the margin of the product in the longer term
  • A business leader wants to hire a star performer working for another company, and is prepared to pay her more than the maximum of the corporate salary band for these types of roles. The HR Business Partner tries to prevent this because he does not want to create a precedent that can create upward pressure on the salary costs of the company
  • The head of a shared service department wants to hire an independent contractor for a project for USD 1.200 a day. The Purchasing department forces him to work with a consultant from a well-established firm on the preferred supplier list, for a fee rate that is 3 times as high as the one of the independent contractor

These, and other types of conflicts, seem to be an inevitable part of life in large organizations. The question is: why we have those types of conflicts, and if and how we can prevent them?


Thousands of years ago mankind introduced management layers. Documented examples include for instance Moses for the people of Israel in the desert (Exodus 18:1-27), and the legions of the Roman Empire. These management layers created clear lines of command and control, and provided clarity regarding roles and responsibilities. For these reasons, this organizing principle served us well up until the industrial revolution.

The industrial revolution

The industrial revolution introduced specialized roles in organizations, a clear break with the guild system of the middle-ages, which only knew generalists. Many of these specialized roles did not take part in the primary (production) process anymore but were so-called ‘staff positions’. Examples include for instance ‘Personnel’, ‘Accounting’, and ‘Legal’. 

Although this specialization was unavoidable, a consequence of this was the distribution of decision-making power across multiple parts of the organization. No longer could the head of manufacturing for instance decide who to hire, ‘Personnel’ needed to be involved as well. 

Business Units

Later during the industrial revolution, the Divisional structure was introduced, often in the form of Business Units. This introduced two additional sources for potential conflicts. First of all between the executives on corporate level and those in the different divisions about decision-making power, and secondly for conflicts between the different Business Units, for instance about budget allocation or overlapping product lines.

‘The matrix is everywhere’ (Morpheus)

The pinnacle of complexity seemed to have been reached when the matrix organization was introduced. Most matrix organizations have at least three dimensions: a geographical, a line of business, and a functional one. Some have even more – I once heard the example of a French car manufacturer that had a whopping 57 (fifty-seven) of them.

This three (or more) dimensional structure exponentially increased the complexity of decision-making and the potential for conflicts in organizations. If a local operating company in a country wanted to buy an IT system for instance, this could require the buy-in and/or approval of the country, BU and responsible business function.

As I said, ‘the pinnacle of complexity seemed to have been reached’, because nowadays every organization feels compelled to introduce ‘independent’ agile teams, which behave like ivy around the formal organization structure.

What now?

For a long time, organizations actively sought to prevent or minimize conflicts by adopting an engineering mindset: they aimed to eliminate or minimize (potential) conflicts in the way they designed their organizational structures, decision-making processes, and job descriptions. 

‘Dealing with ambiguity’

In the early 2.000’s, a general realization set in that there was no perfect way to allocate responsibilities and decision-making power in large organizations. As a result of this realization, phrases like ‘dealing with ambiguity’, ‘healthy tensions’, ‘putting pressure on the system’, and ‘Yes and no can be true at the same time’, became en vogue.

Many organizations even started to see the ability to deal with ambiguity as a essential skill in order to be able to work effectively, and started using this for instance in selection processes.

At the same time, best-selling business books like ‘Emotional Intelligence’ by Daniel Goleman stressed the need, and possibility, to adapt our behaviors to operate effectively with conflicts in (business) situations we can find ourselves in. A far cry from the call to authenticity in 1970’s…

In other words, the realization set in that shortcomings in the structure of organizations could be compensated by addressing the behavorial competences of the individuals populating this structure.

Ambiguity comes at a cost

The fact that a certain degree of ambiguity cannot be avoided in designing large organizations does not mean this ambiguity does not come at a cost, and that the more accountability and decision-making power are decoupled, the higher these costs will be.

The costs of ambiguity typically manifest themselves in the following forms:

  • Sub-optimal decisions – The more decision-making power is distributed, the more stakeholders need to be involved in decision-making processes. Hopefully, the value added by these stakeholders offsets the additional time required due to their involvement. The quality of the decisions can also suffer, because often compromises need to be made to secure the buy-in of these stakeholders. Unfortunately compromises almost always incorporate some of the disadvantages of the original options, and almost never realize the full advantages of them… 
  • Conflicts – Ambiguity in decision-making processes often leads to conflicts because different people in the same organization are held accountable to deliver (sometimes completely) different outcomes. Whereas we as leaders create this ambiguity – it is often our staff that suffers the consequences. They did not sign-up to be in an ambiguous situation where they lack the clarity to be the best they can be at their work
  • Duplication of effort – Ambiguity can also indicate that there is excess production capacity in the organization, especially if two or more parts of the organization compete over who is best equipped to execute which activities or initiatives

Our decision as leaders: structure or behaviors

In the end it all boils down to the ratio between structure and behaviors.

Given the fact that a certain degree of ambiguity in large organizations is inevitable, the question is to which degree these structural shortcomings in the structure, decision-making processes and allocation of roles and responsibilities in the organization, need to be compensated by the behavorial competences of members of the organization.

If the ratio is 80% structure – 20% behaviors, there is probably not an issue. However, if the ratio is 60% – 40%, your organization might be in the danger zone.

When considering this, it might be helpful to remember that it is often much easier to change a reporting line, or to re-assign the authority to take certain decisions. However painful these can be – they are essentially one-offs.

Changing the behaviors of people is a lot harder. It is the difference between making it necessary for people to start acting in a new way of thinking, rather than asking them to think themselves in a new way of acting.

As a leader, it is probably a good idea to ask yourself how much ambiguity your company can afford. If you are a major oil and gas company in 2023, the answer is probably: ‘a lot‘. However, if you are active in the vast majority of industries that are negatively impacted by the current economic climate, you might ask yourself how much your margin (and employee satisfaction) could be improved if you addressed the level of ambiguity stemming from your organization structure and decision-making processes…

‘Clarity precedes success’

Robin Sharma

Picture credits: This is not a pipe – ‘The Treachery of Images’​ – René Magritte

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