Principle 5: Avoid Conflicts of Interests
Don't expect individuals to go in two opposing directions.

There are five fundamental conflicts of interests inherent in all businesses, and in businesses within a business:

• Invention (major innovations) versus operational stability

• Purpose-specific solutions (applications) versus the platforms or modules that contribute to various purposes (components)

• Enterprisewide thinking versus the focus of a specialist

• Technical/product specialization versus unbiased diagnosis of clients' needs

• Service orientation versus audit

When structure tells an individual to go in two (or more) opposing directions, it creates conflicts of interests. There are adverse consequences both for the organization and for the people involved:

Gaps: Putting people in conflict-of-interests situations doesn't produce excellence at both missions. With finite time and attention, people might be mediocre at both missions. More commonly, they prefer one (based on their predilections), and performance at the other mission falls short (a gap).

Unpredictable balance: The balance between conflicting missions is not a deliberate process -- an interplay among peers that analyzes trade-offs. Individuals decide the balance based on their limited view of the organization's needs, their intuitions, and personal preferences.

As one manager leans one way and another in the other direction, when their decisions are added up, there will be a tendency toward the mean -- regardless of the needs of the business at that time.

Meanwhile, the organization's top executive has little control over the balance -- there's no knob to turn, no explicit way to adjust the balance on these conflicting objectives when it's left to each manager's intuition and preference.

Stress: A more personal consequence is stress. When people are expected to go in opposing directions, they're torn; and typically they're fully aware of their failure to succeed at both. Highly stressful jobs lead to poor motivation, performance deficiencies, and even health problems.

Since every organization faces all these conflicts of interests, its top executive inevitably must cope with all these paradoxes and decide the balance point on each. But at lower levels, it's not healthy to combine functions with opposing objectives.

This leads to a simple structural guideline: Reserve conflicts of interests for the highest possible level in the organization chart, ideally for the organization's top executive alone.

A healthy structure defines jobs that focus on only one side of each paradoxical dimension. This gives staff clear, non-conflicting job objectives. And it allows the executive to explicitly adjust the balance by shifting resources between groups.