For years your business was doing well, more than well, it was doing excellent. But now things have taken a turn for the worse and the worst thing is, you can’t find the root of the problem. The strategy you followed all these years that was serving you well, is now betraying you. How can you strategically respond to this unforeseen situation and come out on top of it?
Complex problems that require complex solutions will present themselves to a business. This could be the emergence of a new competitor or changes in the market, like a worldwide pandemic for example. The importance of strategy formulation is paramount for business success and choosing the right approach is the first step.
In this article we will:
- Acknowledge the Problem
- Define What is a Top-Down/Bottom-up Approach
- Explain How Companies Benefit from a Top-Down/Bottom-Up Approach
- Identify Factors that Indicate the Need to Adopt a Top-Down/Bottom-Up Approach
- Detail How to Mitigate the Risks of a Top-Down/Bottom-Up Approach
- Top-Down vs Bottom-Up
Not all companies benefit from the same approach, nor do they benefit to the same degree. Knowing which are the right circumstances to apply this approach can make or break a company.
Identifying the Problem is Hard. Fixing it is Harder
The first order of business is diagnosing this great challenge the company faces, this is at the core of strategy formation. Reality is complex and messy, simplifying reality by pinpointing the crucial aspects that are prevalent in shaping it leads to greater insight.
In turn, this insight into the challenge forms the nucleus of the solution. This nucleus is the seed from which the approach to overcome the challenge blossoms. This is the approach that guides the design of a plan of coherent and specific actions. Though not exhaustive, this is the recipe every winning strategy follows.
Strategy formation should precede the organizational design of a company. The structure of the company affects the communication patterns within it. As a result, the optimal organizational design serves the company’s vision and goals.
There is no universal optimal design because visions, goals, and assets are not universally shared. Each organizational strategy offers some benefits by making certain things easier, but also puts some drawbacks on the table that make other things harder. The choice of the strategy reflects the company’s priorities.
Here we will discuss two specific approaches to strategic management and when it’s best to utilize each of them: the top-down approach and the bottom-up approach. These refer to the information flow within an organization’s hierarchical system, how an organization processes information and organizes knowledge.
Top-Down Strategy
Companies that adopt a top-down management approach are essentially choosing an autocratic leadership model. Decisions are made from those in upper management with little to no input or feedback and then they’re communicated down to the employees.
How Does a Company Benefit From a Top-Down Approach?
- Decision making quickens
- Employees have a clear directive
- Easier to align strategy
The first impact of a top-down strategy is on decision-making. When the head of the organization is responsible for every important decision, it shortens the time between diagnosing the challenge and taking effective action. The proficiency of the decision-maker dissolves the need for feedback and input from the rest of the team and saves time (and money) presenting the solution ready for execution.
The second impact is on employee productivity. Freeing employees of the responsibility of decision-making allows them to focus on execution. The stress of choosing the right actions doesn’t burden them. They are only concerned with the implementation of the plan. Arguably, some believe this is the key to increasing productivity.
The third impact and most important is that of the alignment of strategy. When under autocratic leadership a company’s strategy is better understood, as all employees know where they sit in the company and what their role is. This makes operating in alignment with the company strategy much more straightforward in comparison to a bottom-up approach.
Source: HBR.org What Employees Value at Work
What Do Employees Value at Work?
An additional impact of management is more preventive. In an organization where departments are more autonomous or there are inter-departmental disputes, imposed policies from above give little room for dissidence. The heads of the departments have their own priorities and may be blind to the big picture. Respecting the policies achieves strict coordination and ensures consistency with the big picture. Keep in mind that “departments” here are used in a loose fashion. It could just as easily mean members of a team or project.
What are the Indications that your Business needs a Top-Down Approach?
High time constraints. In states of emergency or impossible deadlines, democracy flies out of the window. There is no time for a surgeon to debate their decision or enforce instructions. When inaction is worse than a bad decision, justifying the plan isn’t relevant. Execution becomes a top priority.
Precise execution. Perfect execution of a mediocre plan (read decision) is better than mediocre execution of a perfect plan. Sometimes making a decision, even if it’s not the best, is better than stalling. Obedience then becomes a necessity. That’s why armies have such a strict hierarchy.
Leader is an expert. Autocratic leadership is also extremely effective when the top person in charge, e.g. the team leader, has overwhelmingly higher expertise than the rest of the people. The owner of a small business might have years of experience in the market. He knows the craft and has seen what works and what doesn’t.
What are the Risks of a Top-Down Approach?
Potential abuse. Nobody likes a jerk. Exercising authority doesn’t have to be demeaning. Don’t confuse confidence with arrogance. Rudeness, entitlement, and insults are the fastest way to a destructive culture. Do have empathy. Be strict, but not condemning. Don’t bully or judge people.
Underqualified leadership. When questioning decisions isn’t a choice, the company relies solely on the instructions of the top people in charge. But what happens if they’re wrong? Even experienced people make mistakes. Do question yourself. Ask for help, if needed. Don’t allow past experiences to limit your view. New circumstances or unforeseen changes demand unbiased vision.
Toxic culture. Emergencies don’t last forever. Find the time to communicate the vision and the reasoning behind the plan. Sometimes people just need some details of the underlying intentions to understand where they fit in it. Do be fair. Unfounded favoritism cultivates disloyalty. Don’t ignore concerns, especially recurrent ones. Face them bravely and justly.
Implementation problems. Constantly dismissing feedback leads to disconnection from reality. The plan might be genius, but if the implementation is impossible then it is worthless. Do design the system properly i.e. align incentives, offer proper training and support, be flexible if it doesn’t work out. Don’t disconnect from the front line. Construct a clear image of what works and what doesn’t.
Absence of delegation. The head of an organization should identify the big picture, set the goals and expectations. When forming the guiding policy and the coherent action, the responsibility of the top people in charge is to keep everything aligned with the vision. It’s not to decide on every painstaking detail of it. Do keep the principles clear. Allow conversations around tactics, but not principles. Don’t hide when delegation needs to be organized.
Bottom-Up Strategy
Companies that adopt a bottom-up management approach are essentially choosing a horizontal leadership model. Decisions are made from the joint involvement of employees and feedback is constantly communicated upwards.
How Does a Company Benefit From a Bottom-Up Approach?
- Process Optimization
- Collaborative Working Environment
The first benefit of a bottom-up strategy is taking advantage of the specialized skills of the front-line employees. Participating in the decision-making process allows them to bring to the table their unique perspective and expertise. Responsiveness to customers improves and productivity rises. The processes are optimized since experimentation fosters.
The second impact is on the culture. People feel heard. They feel like they’re contributing and they’re empowered to take initiatives and develop solutions. Personal development aligns with the growth of the business and cooperation trumps individual competition. New talents are attracted by the opportunity to grow and create.
What are the Indications that your Business needs a Bottom-Up Approach?
Creativity. When creativity and new ideas are a priority, freedom, and initiatives are critical. Tapping into individual knowledge and unique perspectives brings an abundance of ideas and material to choose from. Each little contribution may lead to an incredible insight.
Responsiveness. When changes in the environment ( i.e. market, competitors, etc) are not well understood and direct feedback from the front line is needed to educate decision-makers. The successful questioning of the assumptions depends on having a clear picture of the current situation. The new understanding informs the designing of a responsive plan.
High turnover rate. An unmistakable sign of a hostile working environment is the constant need for new staff. If you are unable to find “loyal” and “hardworking” employees, maybe it’s not the fault of the new recruits. Impossible demands, unfair treatment, and conscious exploitation are not fertile ground for loyalty and an engaged workforce. If it is not occurring in an isolated position, then the real issue is ignored. People are trying to do their job as much as they’re trying to protect themselves. High performance and hard pressing deadlines are lagging measures of a culture’s hospitality (or toxicity).
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Source: HBR.org When Should You Take Action on an Employee’s Performance Issues?
Unsatisfied Customers. Consistent complaints and lack of recurring customers are strong evidence of bad customer service. Again, if you can’t isolate the problem to an individual, then the decay is deeper. The unsatisfied customers are merely the symptom of the disease. Shady tactics tend to yield decent short-term earnings but are extremely deadly in the long run.
What are the Risks of a Bottom-Up Approach?
Overwhelming Feedback. When the flow of information is constant and unstructured, it’s impossible to sort through. Do standardize a way of giving upwards feedback with a system that promotes actionable insights. Don’t allow unstructured, vague, and purposeless information to reach you.
Complexity. A bottom-up approach processes incoming data from the environment and creates simple systems. Combining those systems for actionable output gives rise to complexity. Do establish policies and general rules. Let some exception out of them. They can be tackled without adding to the complexity. Don’t try to use it to scale. Scaling needs simplicity.
Incapable Individuals. The truth is horizontal organizations rely heavily on having capable and motivated individuals on the working level. Do listen to those who care and support them. Offer training and guidance. Don’t abstain from putting serious effort into hiring the right people. They can be the best choice of your life and just as easily your worst nightmare.
Vulnerable Future. Optimizing processes is enough for small businesses to thrive, sometimes. But for bigger companies is only half the answer. Do have people free from today’s needs and working on deeper disciplines that will also serve the future. Don’t dismiss changes that aim at tomorrow’s customers.
Top-Down vs Bottom-Up
Impose rigid hierarchy and you destroy your culture.
Focus only on optimizing processes and you’ll never achieve competitive breakthroughs.
Like everything in life applying a single approach is rarely the best option. Optimal structure and management are somewhere in the middle. Maybe your business needs a decisive leader who knows the market and the craft. In small businesses usually, the owner is that person. But give your employees no freedom, micromanage and punish every little mistake and you’ll be out desperately looking for new people in no time.
In the beginning, we said strategy determines the business’s structure. In all truthfulness that is an old and maybe a little simplistic, if not outdated, notion. Reality has this to be more complex. The process of building the optimal organizational structure with its decision systems and staff composition is not linear.
It is iterative, where a nucleus assesses the situation forming the strategy and then the structure. Furthermore, the structure is not set in stone; it is temporary and needs to be ready to pivot in order to quickly address environmental changes and new needs.
People need to know what matters. The company constantly communicates that voluntarily or not. Whom are the people urged to look upon as role models? What is being measured and what is being rewarded? Is the flow of information one-directional? Which direction does it favor and how does that impact the culture? Is there a sense of membership, do the leaders inspire and empower or only order around? What are people training at? What incentives are there to participate?
These questions confront not only the structure but the overarching strategy of an organization. If only there was a tool to visualize either your Top-Down or Bottom-Up Approach… Try Cascade for Free today!
