Hybrid Organizations

By Andy Grove

The game of management is a team game: a manager’s output is the output of the organizations under his supervision or influence.

We now discover that management is not just a team game, it is a game in which we have to fashion a team of teams, where the various individual teams exit in some suitable and mutually supportive relationship with each other.

Alfred Sloan summed up decades of experience at General Motors by saying, “Good management rests on a reconciliation of centralization and decentralization.” Or, we might say, on a balancing act to get the best combination of responsiveness and leverage.

We are hybrid organization. Our hybrid nature comes from the fact that the form of the overall corporate organization results from a mix of the business divisions, which are mission oriented, and the functional groups.

This is much like the way I imagine any army is organized. The business organizations are analogous to individual fighting units, which are provided with blankets, aerial surveillance, intelligence/information, and so forth by the functional organizations, which supply such services to all fighting units. Because each such unit does not have to maintain its own support groups, it can concentrate on a specific mission.

The functional groups can be viewed as if they were internal subcontractors. Sales, manufacturing, finance, or data processing can all be regarded as functional groups, which, as internal subcontractors, provide services to all the business units.

Some two thirds of Intel’s employees work in the functional units, indicating their enormous importance. What are some of the advantages of organizing so much of the company in such groups?
Important advantage is that resources can be shifted and reallocated to respond to the changes in corporate-wide priorities. For instance, because manufacturing is organized functionally, we can change the mix of product being made to match need as perceived by the entire corporation. And the advantage here is that the expertise of specialists – know-how managers, such as the research engineers who work in technology development – can be applied across the breadth of the entire corporation, giving their knowledge and work enormous leverage. Finally, Intel’s functional groups allow the business units to concentrate on mastering their specific trades rather than having to worry about computers, production, technology, and so forth.
If each business unit did its own manufacturing, shifting capacity away from one unit to another would be a cumbersome and sticky exercise.

What are some of the advantages of organizing much of the company in a mission oriented from?
There is only one. It is that the individual units can stay in touch with the needs of their business or product areas and initiate changes rapidly when those needs change. That is it! The business of any business is to respond to the demands and needs of its environment, and the need to be responsive is so important that it always leads to much of any organization being grouped in mission-oriented units. All other considerations favor the functional-type of organization.

No matter how many times we have examined possible organizational forms, we have always concluded that there is simply no alternative to the hybrid organizational structure. So that is how Intel is organized today.

All large organizations with a common business purpose end up in a hybrid organizational form. Every large company or enterprise that I know is organized in a hybrid form.

The use of the hybrid organizational form doesn’t even necessarily depend on how large a business or activity is.

One medium size law firm ended up forming an executive committee that would not interfere with the legal (mission-oriented) works of the individual attorneys but would address the acquisition and allocation of common shared resources.

This is much like the way any traditional family is organized. The business unit is analogous to the husband, who is provided with breakfast and dinner, clean cloth, and so forth by the functional organization, the woman at home, who supplies such services to his husband. Because the husband does not have to maintain his own household chores, he can concentrate on a specific mission - namely earning a living for his family.

Do any exception to the universality of hybrid organization? The only exceptions are conglomerates, which are typically organized in a totally mission-oriented form. They are an exception to this hybrid rule because they do not have a common business purpose. The various divisions (or companies) in this case are all independent and bear no relationship to one another beyond the conglomerate profit and loss statement. But within each business unit of the conglomerate, the organization is likely structured along the hybrid line.

Of course, each hybrid organization is unique because a single organization may very well shift back and forth between the two poles, movement that should be brought on by pragmatic considerations. The shift back and forth between the two types of organizations can and should be initiated to match the operational styles and aptitudes of the managers running the individual units.

Sooner or later all reasonably large companies must cope with the problems inherent in the workings of a hybrid organization. The most important task before such an organization is the optimum and timely allocation of its resources and the efficient resolution of conflicts arising over that allocation. Though this problem may be very complex, “allocators” working out of some central office are certainly not the answer. If we at Intel tried to resolve all conflict and allocate all resources at the top, we would begin to resemble the group that ran the Communism economy.

Instead the answer lies with the middle managers. Within a company, they are, in first place, numerous enough to cover the entire range of operation; and, in the second place, very close to the problem we’re talking about – namely, generating internal resources and consuming those resources.

For the middle managers to succeed at this high-leverage task, two things are necessary:
First, they must accept the inevitably of the hybrid organizational form if they are to serve its working.
Second, they must develop and master the practice through which a hybrid organization can be managed. This is dual reporting.

Dual Reporting
When our company was young and small, we stumbled onto dual reporting almost by accident. At a stuff meeting we were trying to decide to whom the security personnel at our new outlying plants should report. We have two choices.
One would have the employees report to the plant manager. But a plant manager, by background, is typically an engineer or a manufacturing person who knows very little about security issues and cares even less.
The other choice would have them report to the security manager at the main plant. He hired them in the first place, and he is expert who sets the standards that the security officers are supposed to adhere to throughout the company. And it was clear that security procedures and practices at the outlying plants had to conform to some kind of corporate standard. But the security manager works at corporate headquarters and not at the outlying plant, so how would he know if the security personnel outside the main plant even showed up, or came in late, or otherwise performed badly? He wouldn’t.
The solution would be that the security personnel should report jointly to the corporate security manager and the local plant manager. The corporate security manager would specify how the job ought to be done, and the local plant manager would monitor how it was being performed day by day.
Could an employee in fact have two bosses? The answer is a tentative “yes.”

The need for dual reporting is actually quite fundamental.

Among other things our new general manager has no experience with the manufacturing. So while he is perfectly capable of supervising his manufacturing manager in the more general aspects of his job, the new boss has no choice but to leave the technical aspects to his subordinate because as a graduate of sales, he has absolutely no background in manufacturing.
In other divisions of the corporation, manufacturing managers may similarly be reporting to people who rose through the ranks of engineering and finance.

We want the immediacy and the operating priorities coming from the general manager as well as a technical supervisory relationship. The solution is dual reporting.

We could handle the problem by designating one person the senior manufacturing manager and having all the manufacturing managers report to him instead of to the general manager. But the more we do this, the more we move toward a totally functional form of organization. A general manager could no longer coordinate the activities of the finance, marketing, engineering, and manufacturing groups toward a single business purpose responsive to the marketplace needs.

Does the technical supervisor’s role have to be filled by a single individual? No.
All the manufacturing managers can build a committee or a council made up of a group of peers to tackle the issue common to all. In short, there is a way to deal with those technical issues that their bosses, the general managers, can’t help them with. In effect, they now have supervision that a general manager competent in manufacturing could have given them, but the supervision is being exercised by a peer group. The manufacturing managers report to two supervisors: to this group and to their respective general managers.

To make such a body work requires the voluntary surrender of individual decision-making to the group. Being a member means you no longer have complete freedom of individual action, because you must go along with the decisions of your peers in most instances. Surrendering individual decision-making depends on trusting the soundness of actions taken by your group of peers. The point is that a strong and positive corporate culture is absolutely essential if dual reporting and decision-making by peers are to work.

By analogy, think of yourself as one of a couple who decide to take a vacation with another couple. You know that if you go together you will not be free to do exactly what you want to do when you want to do it, but you go together anyway because you’ll have more fun, even while you’ll have less freedom.

This system makes a manager’s life ambiguous, and most people don’t like ambiguity. Nevertheless, the system is needed to make hybrid organizations work. Hybrid organizations and the accompanying dual reporting principle, like a democracy, are not great in and of themselves. They just happen to be the best way for any business to be organized.

To make hybrid organization work, you need a way to coordinate the mission-oriented units and functional groups so that resources of the functional groups are allocated to meet the needs of the mission oriented units.

Consider how the controller works at Intel. His professional methods, practices, and standards are set by the functional group to which he belongs, the financial organization.
The divisional manager gives the controller mission-oriented priorities by asking him to work on specific business problems.
The finance manager makes sure that the controller is trained to do his work in a technically proficient manner, supervises and monitors his technical performance, and looks after his career inside finance, promoting him, perhaps, to the position of controller of a bigger, more complex division if he perform well.
Again this is dual reporting, the management principle that enables the hybrid organization form to work. This example has parallels throughout a corporation.

Consider advertising, the division-marketing managers should control most of their own advertising messages. Because each division clearly understands its own strategy best, and therefore presumably best understands what its advertising message should be and to whom it should be aimed.

But a coordinating body of peers consisting of the various divisional marketing managers and perhaps chaired by the corporate merchandising manager should provide the necessary functional supervision for all involved. This body would choose the advertising agency, for instance, and determine the graphic image to which all divisional ads should confirm. In this way the ads ought to project a consistent image that is right for everybody. Taken together represent a much more complete solution to the customers’ needs than what can be provided by an individual division. Yet the specific selling message communicated by an individual ad would be mainly left to the divisional people. Here the customer and hence the manufacturer clearly benefit if all it advertising stories are told in a coherent, coordinated fashion. Also, the advertising sells not just a specific product but the entire corporation as well. Dual reporting enables us to communicate individual product and market messages and maintain a corporate identity at the same time.

Dual reporting can certainly tax the patience of the marketing managers, as they are now also required to understand the needs and thoughts processes of their peers.

We should merciless slash away unnecessary bureaucratic hindrance; apply work simplification to all we do. But we should not expect to escape from complexity by plying with reporting arrangements. Like it or not, the hybrid organization is the fundamental phenomenon of organizational life.


The Two-Plane Organization

In her daily work, Cindy - a process engineer, keeps things going by manipulating the manufacturing equipment, watching the process monitors, and making adjustments when necessary. Cindy reports to a supervising engineer, who in turn reports to the engineering manager of the plant.

But Cindy has another job, too. She meets formally once a month with her counterparts from the other production plants to identify, discuss, and solve problems related to the process for which they are each responsible in their respective plants. This coordinating group also works to standardize procedures used at all plants. The work of Cindy’s group, and others like it is supervised by another more senior group, which is made up of the engineering managers from all plants.

Cindy’s two responsibilities won’t fit on a single organization chart. Instead, we have to think of the coordinating group as existing on a different chart, or on a different plane. No one would confuse these two roles: clearly operating on different planes. Our ability to use Cindy’s skill and know-how in two different capacities makes it possible for her to exert a much larger leverage at Intel.

In her main job, her knowledge affects the work that takes place in one plant; in her second, through what she does in the process-coordinating group, she can influence the work of all plants. So we see that the existence of such groups is a way for managers, especially know-how managers, to increase their leverage.

If a person can operate in two planes, he can operate in three. Cindy could also be part of a task force to achieve a specific result in which her expertise is needed.

It could also turn out that people who are in a subordinate/supervisory relationship in one plane might find the relationship reverse in another. For example I am president of Intel, but in another plane I am a member of a strategic planning group, where I report to its chairman, who is one of our division controllers.

The point is that two- or multiple-plane organization is very useful. Without it I could only participate if I were in charge of everything I was part of. I don’t have that kind of time, and often I’m not the most qualified person around to lead. The multiple-plane organization enables me to serve as a foot soldier rather than as a general when appropriate and useful. This gives an organization important flexibility.

Many of the groups we are talking about are temporary. Some, like task forces, are specifically formed for a purpose, while others are merely an informal collection of people who work together to solve a particular problem. Both cease to work as a group once the problem has been handled. The more varied the nature of the problems we face and the more rapidly things change around us, the more we have to rely on such specially composed transitory teams to cope with matters.

The techniques that we have to master to make hybrid organizations work are dual or multiple reporting and also decision making by peer groups. The key factor common to all is the use of cultural values as a mode of control.


Modes of Control

Our behavior in a work environment can be controlled by three invisible and pervasive means. These are:
1. Free-market forces
2. Contractual obligations
3. Cultural values

1. Free-market forces

In the free market, you’ll make a decision based on one thing: your own self-interest. For an example you want to buy the tires you think will meet your needs at the lowest cost to you. It is quite unlikely that any personal feelings toward the tire dealer will come to mind. You are not concerned about his welfare – there is no much chance that you would say to him that he isn’t charging you enough for the tires.

The free market can easily establish a price for something as simple as tires. But for much else that changes hands in a work or business environment, value is hard to establish. The point is that how much an engineer is worth in a group cannot be pinned down by appealing to the free market. In fact, if we bought engineering work by the “bit,” I think we would end up spending more time trying to decide the value of each bit of contribution than the contribution itself is worth. Here trying to use free-market concepts becomes quite inefficient.


2. Contractual obligations

For an example, it’s a law establish by society at large that everybody stops at a red light and you unquestioningly accept and live by it. Vehicular chaos would reign if all drivers had not entered into a contract to stop. The traffic cop monitors adherence and penalizes those who break the law.

You say to the engineers, “Okay, I’ll retain your services for a year for a set amount of money, and you will agree to do a certain type of work in return. We’ve now entered into contract. I’ll give you an office and a terminal, and you promise me to do the best you can to perform your task.

The nature of control is now based of contractual obligations, which define the kind of work you will do and the standards that will govern it. So you must give to me as part of the contract the right to monitor and evaluate and, if necessary, correct your work. We agree on other guidelines and work out rules that we will both obey.

In a contractual obligation, management has a role in setting and modifying the rules, monitoring adherence to them, and evaluating and improving performance.


3. Cultural values

You come upon the scene of a major accident. Quite likely, you’ll forget about laws like not stopping on a freeway and also forget about your own self-interest: you’ll probably do everything you can to help the accident victims and, in the meantime, expose yourself to all kinds of dangers and risks. What motivates you now is not at all that when you were shopping for tires or stopping at the red light: not self-interest or obeying the law, but concern about someone else’s life.

The most important characteristic of control, which is based on cultural value, is that the interest of the larger group to which an individual belongs takes precedence over the interest of individual himself. When such values are at work, some emotionally loaded words come into play – words like trust – because you are surrendering to the group your ability to protect yourself. And for this to happen, you must believe that you all share a common set of values, a common set of objectives, and common set of methods. These, in turn, can only be developed by a great deal of common, shared experience.

For cultural values, management has to develop and nurture the common set of values, objectives, and methods essential for the existence of trust. How do we do that?
One way is by articulation, by spelling out these values, objectives, and methods.
The other, the more important way, is by example. If our behavior at work will be regarded as in line with the values we profess, that fosters the development of a group culture.


The Most Appropriate Mode of Control

Given a certain set of conditions, there is always a most appropriate mode of control, which we as managers should find and use. How do we do that? There are two variables here: first, the nature of a person’s motivation; and second, the nature of environment in which he works. An imaginary composite index can be applied to measure an environment’s complexity, uncertainty, and ambiguity, which we’ll call the CUA factor.

Cindy, the process engineer, is surrounded by tricky technologies, new and not fully operational equipment, and development engineers and production engineers pulling her in opposite directions. Her working environment, in short, is complex.

Bruce, the marketing manager, has asked for permission to hire more people for his grossly understuffed group; his supervisor waffles, and Bruce is left with no idea if he’ll get the go-ahead or what to do if he doesn’t. Bruce’s working environment is uncertain.

Mike, whom we will now introduce as an Intel transportation supervisor, had to deal with so many committees, councils, and divisional manufacturing managers that he didn’t know which, if any, end was up. He eventually quit, unable to tolerate the ambiguity of his working environment.

It is our task as managers to identify which mode of control is most appropriate. When group-interest orientation and the CUA factor are both high, the cultural values mode becomes the best choice. When the CUA factor is high and individual motivation is based on self-interest, no mode of control will work well. This situation, like every man for himself on a sinking ship, can only produce chaos.

Let’s apply our model to the work of a new employee. What is happening? It is very much best on self-interest. So you should give him a clearly structured job with a low CUA factor. If he does well, he will begin to feel more at home, worry less about himself, and start to care more about his team. He learns that if he is on a boat and wants to get ahead, it is better for him to help row than to run the bow. The employee can then be promoted into a more complex, uncertain, ambiguous job. (These tend to pay more).

As time passes, he will continue to gain an increasing amount of shared experience with other members of the organization and will be ready to tackle more and more complex, ambiguous, and uncertain tasks. This is why promotion from within tends to be the approach favored by corporations with strong corporate cultures.

Bring young people in at relatively low-level, well defined jobs with low CUA factors, and over time they will share experiences with peers, supervisors, and subordinates and will learn the values, objectives, and methods of the organization. They will gradually accept, even flourish in, the complex world of multiple bosses and peer-decision-making.

But what do we do when for some reason we have to hire a senior person from outside the company? Like any other new hire, he too will come in having high self-interest, but inevitably we will give him an organization to manage that is in trouble; after all, that was our reason for going outside. So not only does our new manager have a tough job facing him, but his working environment will have a very high CUA. Meanwhile he has no base of common experience with the rest of the organization and no knowledge of the methods used to help him work. All we can do is to cross our fingers and hope he quickly forgets self-interest and just as quickly gets on top of his job to reduce his CUA factor.


Modes of Control at Work

Bob’s coming to work in the first place represents a transaction governed by contractual obligations. He is paid a set of salary for doing his best, which implies that he has to show up. And his willingness to participate in strategic planning activities shows cultural values at work. This is work outside of his regular job as defined contractually, and so represents extra effort for him. But he does it because he feels the company needs what he has to contribute.

At one time, one of our divisions had serious problems, leaving the sales engineers with no product to sell for nearly a year. They could have left Intel and immediately gotten other jobs and quick commission elsewhere, but by and large they stayed with us. They stayed because they believed in the company and had faith that eventually things would get better. Belief and faith are not aspects of the market mode, but stem from adherence to cultural values.