Deutsche Version

“Made in Germany” is no longer just a label, but a state­ment. It has signif­i­cance and endurance. It is a testi­mony to high-quality, durable processes and prod­ucts. It bears witness to dignity and tradi­tion and creates the impres­sion of an effi­cient, well-oiled machine. But what if this impres­sion is wrong? 

Of course, no orga­ni­za­tion func­tions absolutely smoothly. Espe­cially tradi­tional compa­nies, as many German compa­nies are, can get in their own way. If the predom­i­nant approach in the minds of manage­ment and staff is “we’ve always done it this way”, then good old tradi­tion becomes the sand in a company’s gears instead of the wind in its sails. Progress turns into stand­still, wings turn into weights. Only a radical change can give the neces­sary impulse for a fresh wind that blasts the rust out of the gears. 

In coop­er­a­tion with eurac, the machine and plant manu­fac­turer IDEAL-Werk took the plunge to completely restruc­ture its corpo­rate orga­ni­za­tion on the basis of the Beta Codex. In this case study, we discuss the reasons, approach, and results of the company-wide restruc­turing. Read on to find out how the Beta Codex model was imple­mented — and what IDEAL-Werk gained from using it.

Tried and True or Old and Dusty?

IDEAL-Werk is a German manu­fac­turer in mechan­ical and plant engi­neering founded in 1923, which has devel­oped from a small company to a 200-employee, inter­na­tion­ally active tech­nology leader for welding machines. IDEAL-Werk’s product range offers machines and solu­tions for welding for indus­trial use in produc­tion for customers in the auto­mo­tive and wire goods indus­tries, among others. 

In 2016 Rainer Pumpe joined the company as the third managing director and turned his fresh eye on the tried and tested corpo­rate struc­tures and processes. However, long­standing prob­lems soon became apparent, having prac­ti­cally devel­oped a life of their own in their effect on the company’s orga­ni­za­tion. 

For example, tasks and respon­si­bil­i­ties weren’t always clearly assigned; although they were offi­cially recorded in the orga­ni­za­tional struc­ture, they weren’t lived out. The company was orga­nized into divi­sions and subor­di­nate depart­ments according to the tradi­tional pyra­midal “alpha” orga­ni­za­tion: 

Classic hier­ar­chical orga­ni­za­tional struc­ture of IDEAL-Werk

The “Project Manage­ment” depart­ment stood out in partic­ular because it took on all sorts of tasks that should have been handled by other depart­ments: sales, quota­tion plan­ning, machine design, order processing, mechan­ical (and elec­trical) design — it was precisely here that tasks and respon­si­bil­i­ties were attrib­uted to several enti­ties or not at all, and thus not clearly defined. This made it very diffi­cult to elim­i­nate issues. Respon­si­bil­i­ties were passed back and forth, and because of over­lap­ping compe­ten­cies, many things fell by the wayside. One of the conse­quences was that the orga­ni­za­tion could hardly adapt or react to changing situ­a­tions, prob­lems, or respon­si­bil­i­ties. 

Another issue was the lack of focus on customer needs coupled with a barely existing discus­sion culture. Instead of conducting well-founded market studies or surveying customers about their needs, devel­op­ments were initi­ated on the basis of assump­tions about market demand. 

The many internal inter­faces with different goals and inter­ests led to constant discus­sions around respon­si­bility and account­ability. Any one depart­ment had little under­standing of the goals and needs of another. In addi­tion, deci­sions were mostly made by the manage­ment, only very few directly by the depart­ments them­selves. This slowed down processes and built up resis­tance to change, even if those changes would have solved existing prob­lems. 

“In head of depart­ment meet­ings, depart­ment heads didn’t report to manage­ment; instead, manage­ment reported to the depart­ment heads.” — Rainer Pumpe, CEO IDEAL-Werk

In addi­tion, the reporting system had atro­phied over the years. There were no regular commit­tees in which the depart­ments reported to the manage­ment. According to Mr. Pumpe, the company was “not used to reporting at all”. If, for example, a product discus­sion did take place, it wasn’t the respon­sible sales employee or product manager who reported their facts and figures; instead, the managing director respon­sible for the project took over reporting across all divi­sions. Comments, crit­i­cism, or points for discus­sion were stifled or simply not addressed, which is why these meet­ings and discus­sions didn’t add value and ulti­mately no longer took place. 

In summary, the company’s main issues amounted to the following key points: 

• The orga­ni­za­tion didn’t respond fast enough to changing require­ments (both internal and external)
• Many internal inter­faces as well as differing goals and inter­ests slowed down processes and changes
• Lack of focus on customer needs (internal and external)
• Compe­tence over­laps caused fric­tional losses
• Econom­ical handling of infor­ma­tion
• Deci­sions were largely made by the manage­ment

For the reasons mentioned above, projects some­times dragged on for up to two years. Things couldn’t continue like this if IDEAL-Werk didn’t want to lose its busi­ness — let alone its alpha posi­tion and tech­no­log­ical lead­er­ship in its industry.  

Radical Reboot With the Beta Codex

“True lead­er­ship arises where there are no hier­ar­chies.” — Frédéric Laloux, thought leader and manage­ment consul­tant

Managing Director Rainer Pumpe knew: the company’s dead­locked struc­tures and ways of thinking had to be broken — radi­cally. A reboot was neces­sary, not only to redesign the orga­ni­za­tional struc­tures, but also to give the work­force new impetus and enable a rethink. Different ideas matured over the first three years of his time as the third exec­u­tive board member, but it was only when Mr. Pumpe spoke to Dr. Wolf­gang Schmitz from eurac about his ideas during lead­er­ship work­shops held at IDEAL-Werk that he was finally able to give his ideas a name: Beta Codex. 

Created by manage­ment consul­tant Niels Pfläging, the Beta Codex proposes an alter­na­tive model of thinking to the conven­tional design of orga­ni­za­tions. Instead of the pyra­midal “alpha” orga­ni­za­tion, char­ac­ter­ized by formal hier­ar­chies and func­tional differ­en­ti­a­tion of the company, the Beta Codex sees the future in func­tion­ally inte­grated perfor­mance teams (so-called “cells”) with five to 15 colleagues who solve prob­lems inde­pen­dently and access central services (manage­ment, IT, HR). The cells and the center are mutu­ally depen­dent on each other and thus form a cell-like struc­ture. Instead of working within the frame­work of target agree­ments, func­tions, depart­ments, bonuses, and budgets, each cell works as a mini-company with its own profit and loss account and provides a manage­ment repre­sen­ta­tive. In a beta company, everyone checks each other in order to work more effi­ciently and learn from one another. 

It All Started With a Big Bang

The Beta Codex was in line with Mr. Pumpe’s vision for restruc­turing the company into a lean, sustain­able orga­ni­za­tion for internal and external customers. In close coop­er­a­tion with his colleagues on the manage­ment board and Dr. Schmitz from eurac, a restruc­turing plan based on the codex was drawn up — and the switch was flipped without fore­warning to the staff in March 2020. The restruc­tured organ­i­sa­tion was put in place in only eleven days; the change process was closely moni­tored by eurac during this time. 

Few employees in the company even knew that a reor­ga­ni­za­tion was being discussed — which was exactly the point. Old struc­tures and entrenched ways of thinking had to be radi­cally shat­tered in order to create space to come together in the new, cell-like struc­tures and for a broad­ening of perspec­tives. This was the only way to avoid lengthy, highly resis­tant, and ulti­mately inef­fec­tive change measures. 

For many colleagues, the most radical step in the restruc­turing process was the resig­na­tion of Mr. Pumpe’s fellow manage­ment board members of the founding family, who with­drew from the oper­a­tive busi­ness with imme­diate effect on the very day of the announce­ment. The long-time exec­u­tives’ imme­diate resig­na­tion made the entry into a new era more obvious than even the company-wide move did. That was the first step towards the beta orga­ni­za­tion, imple­mented the day after the announce­ment: the employees, mainly from admin­is­tra­tion and tech­nical areas, grabbed their desks and chairs and moved out of their depart­ment-related premises into new rooms with their new colleagues in the newly-formed cells. 

Inte­grated and Inde­pen­dent Instead of Formal and Func­tional

With the beta codex, hier­ar­chies and struc­tures aren’t simply omitted or changed into a new, cell-based enter­prise organism; a rethink must also take place in the heads of all members in said organism. For IDEAL-Werk, restruc­turing according to the codex meant a rethink on the basis of the following twelve prin­ci­ples:

1. Freedom of action
2. Respon­si­bility
3. Lead­er­ship
4. Perfor­mance climate
5. Success
6. Trans­parency
7. Orien­ta­tion
8. Recog­ni­tion
9. Pres­ence of mind
10. Deci­sion
11. Use of resources
12. Coor­di­na­tion

In the following, we will discuss three of these prin­ci­ples in more detail with regard to the changes at IDEAL-Werk. 

Respon­si­bility: Cells Instead of Depart­ments

The busi­ness units and depart­ments from the classic func­tional orga­ni­za­tion were restruc­tured into cells, so-called “Busi­ness Units” (BUs), in order to reflect different product areas in the company. Depending on require­ments, each BU consists of the roles required to imple­ment a project autonomously from start to finish, including staff from sales, product manage­ment, quota­tion manage­ment, order processing, and devel­op­ment. 

The BUs are supported by central units — the nucleus of the entire orga­ni­za­tion — namely Shared Services and Manage­ment. 

New struc­ture of IDEAL plant according to the beta codex

Now the network itself is the orga­ni­za­tion; informal and formal struc­tures are largely iden­tical and the indi­vidual cells operate as mini-enter­prises. Each mini-enter­prise is also respon­sible for its own distri­b­u­tion and sales. The inter­de­pen­dent units make all deci­sions that affect the customer inde­pen­dently and are respon­sible for managing them­selves. Work is checked among colleagues, which promotes the prin­ciple of self-control and learning. 

Success: Preci­sion Fit Instead of Maxi­miza­tion Mania

Instead of using sales or profit figures as the deci­sive success factor, the focus is shifted to any company’s most valu­able asset: its customers. 

Under the codex, success doesn’t mean making the greatest possible profit, but being able to offer customers exactly what they need, thereby outper­forming the compe­ti­tion. Of course, money is a neces­sary tool to accom­plish this; however, it isn’t the purpose of the company, but a secondary condi­tion of doing busi­ness. A priority isn’t put on the absolute size of the profit, but on above-average quality and prof­itability. 

This requires constant eyes on the market. Where market and target groups were previ­ously often disre­garded, they’re now the focus of atten­tion. BUs not only conduct their own market analyses, but also talk directly to customers to find out their needs and wishes, and to ques­tion their own assump­tions and ideas. This prevents the BUs from putting effort into devel­op­ments that are irrel­e­vant to the market. 

Trans­parency: Intel­li­gence Flow Instead of Power Play

Knowl­edge and know-how is one of the most effec­tive tools and a valu­able asset of any company. With the conver­sion to a beta orga­ni­za­tion, the prevailing infor­ma­tion conges­tion at IDEAL-Werk was broken apart and the free transfer of infor­ma­tion, knowl­edge, skills, and expe­ri­ence between colleagues, BUs, central services, manage­ment, customers, and suppliers was enabled and promoted. 

“Empow­er­ment through infor­ma­tion” is the new motto. All infor­ma­tion systems are completely open to all partic­i­pants — including customers and suppliers, who are bound by trust and coop­er­a­tion instead of contracts and the guarding of knowl­edge. 

The atro­phied reporting system was thus not “repaired”, but completely replaced by a self-sustaining knowl­edge culture. Knowl­edge and infor­ma­tion are no longer dammed up in a few roles and posi­tions, but are stored centrally and made acces­sible to all partic­i­pants, as well as being actively shared decen­trally in small and large spon­ta­neous and planned meet­ings. 

Beyond these three exam­ples, there are many other approaches for rethinking at IDEAL-Werk: rela­tive goals instead of targets, prepa­ra­tion instead of plan­ning, consis­tency instead of bureau­cracy, market dynamics instead of instruc­tion. However, to address all of them indi­vid­u­ally would go beyond the scope of this case study and distract from the most impor­tant aspect: the result. 

Moving Towards New Hori­zons

Although the reor­ga­ni­za­tion was only imple­mented five months ago, the changes are notice­able in all levels, atti­tudes, and results. The formerly prevailing culture of mistrust has devel­oped into an open corpo­rate culture. The freedom to have open discus­sions is no longer merely put in writing but is now put into action; prob­lems aren’t swept under the table but discussed with everyone involved and results are happily and openly presented. 

In inter­views with employees after the reor­ga­ni­za­tion, the general consensus was that the changes had been the right step not just for the company, but also for its employees. What they appre­ciate most is the greater freedom to contribute their own ideas, as well as the greater respon­si­bility that many employees are taking on in their new BUs. There is also a better under­standing of tasks, goals, and respon­si­bil­i­ties across BUs, which makes collab­o­ra­tion much more effec­tive. 

Of course, after only five months, there’s still a need for opti­miza­tion and even a restruc­tured orga­ni­za­tion can develop new issues over time. Due to the autonomous BUs in charge of their own profit- and loss state­ments, for example, some employees foresee the devel­op­ment of a compet­i­tive atti­tude when it comes to acquiring customers, in which case the BUs may lose sight of the company and its well-being as a whole. In such cases, it’s neces­sary to read­just (quality and prof­itability before profit), hold discus­sions, promote knowl­edge transfer, and continue the restruc­turing in the employees’ minds. 

eurac will continue to accom­pany IDEAL-Werk until the end of the year to carry out exactly such opti­miza­tions within the BUs. In future, changes will no longer be initi­ated top-down; instead, the BUs will work autonomously to set new bench­marks based on the twelve prin­ci­ples mentioned above. Since there are no longer concrete targets in a beta orga­ni­za­tion, but rela­tive (compar­a­tive) targets are imple­mented instead, the focus now lies on setting bench­marks and dissem­i­nating them among BUs. 

Above all, the success of IDEAL-Werk’s reor­ga­ni­za­tion according to the beta codex was ulti­mately vali­dated by its employees, who were asked whether they would return to the old struc­tures if it were an option. They answered unan­i­mously with a resounding “No, thanks”.