The spread of meritocratic management that destroys job titles must lead to removing rank insignia and competing based on ability

[HR Insight May 2022 Issue]

CEO Jeon Myung-hwan

In July last year, LG Electronics boldly announced its withdrawal from the smartphone business. Many people were left stunned by the bold decision to end the mobile phone business, which had continued for about 26 years. According to a recent report by a global market research firm, LG Electronics ranked first globally in 2021 with a 35.2% market share in TCU (vehicle communication units). This is the result of successfully shifting the portfolio from smartphones to the automotive electronics business by folding the smartphone segment.SK Inc. has identified four core businesses and categorized the entire SK Group’s business portfolio into advanced materials (semiconductors, batteries), green, bio, and digital sectors, then is expanding and reorganizing the capabilities of existing subsidiaries or broadening specialized business areas through M&A.As the importance of non-memory semiconductors grows in the semiconductor market, Samsung Electronics and SK Hynix are focusing their investments on the fabless and foundry sectors to expand the system semiconductor market. Samsung Electronics recently announced plans to invest 20 trillion won to establish a second foundry plant in Austin, USA, while SK Hynix has expressed its intention to acquire ARM, a British semiconductor design specialist. Construction companies, too, have taken the failure of their previous sprawling business expansion as a lesson, and recently have been accelerating their investment pace by entering ESG-related sectors that are closely related to their core business or classified as future growth drivers.DL E&C (formerly Daelim Construction) is hastening its entry into areas such as carbon dioxide capture, utilization and storage, greenhouse gas emissions trading, and high-pressure gas storage and transportation, while Gyeryong Construction Industry is focusing on solar power generation, power brokerage, and the conversion of waste and by-product fuels. HDC Hyundai Development Company plans to newly add projects such as logistics complex development, logistics warehouses, and data center construction to its articles of incorporation.In addition, many companies are considering survival strategies for the post-COVID era and are reviewing a variety of business strategies to prepare for the various medium- and long-term risks that may arise from the Ukraine-Russia war.The pace of change in the world is accelerating, and the cycles of growth and decline in markets and industries are becoming shorter and shorter, leaving companies no time even to sit idle and gaze into the distance. If an organization cannot respond quickly to the suffocating changes in the external environment surrounding it, its survival cannot be guaranteed. In the current reality, only companies equipped with organizational capabilities to respond swiftly and agilely to such changes can dream of the future. 

Creating a horizontal organizational structure and securing flexibility are priorities; in corporate organizations, “hardware” commonly refers to “organizational structure.” In contrast, the concept of “organizational culture” can be understood from the perspective of software. To respond swiftly to rapidly changing external environmental changes, a company must secure flexibility in its organizational structure, which corresponds to the hardware.The structure of traditional corporate organizations can generally be classified as functional organizations or divisional organizations, but such traditional organizational structures are difficult to be effective in the current situation, where the industrial environment is rapidly changing. To build an agile organizational culture, it is necessary to ensure flexibility in the hardware itself, and accordingly, the adoption of agile systems and large-team structures is actively taking place. To implement an “innovation in the way we work,” SK will expand the adoption of the agile system, which had been introduced mainly in its IT affiliates, to all its subsidiaries. It is based on a way of working that breaks down departmental barriers and organically collaborates by forming small teams according to individual projects. The traditional organizational unit structures—such as headquarters, divisions, departments, sections, and teams—had limitations in clearly distinguishing the content and scope of work, which hindered agile responses to changes in the external environment. In contrast, the agile system is simply structured into squads (similar to a “platoon” in an army) and tribes (small groups), allowing the organization to be formed or dissolved at any time without separate personnel appointments, depending on the situation and centered on the necessary projects, making it an organization structure capable of rapid response.They are also expanding the large-team system across all affiliates, significantly reducing the authority and benefits executives previously held, and innovating the physical environment in a way similar to shared offices—offering open workspaces without assigned individual seats to promote collaboration and encourage creative thinking. They are attempting this kind of spatial innovation. Ultimately, through the large-team system, executives become team leaders, and existing team leaders are required to undergo a complete transformation, taking charge of project operations. When the organization’s hardware becomes flexible in this way, the vertical hierarchical structure, which is directly affected by it, cannot remain unchanged either. To establish a horizontal culture and secure flexibility in the rank system, an agile system or a true large-team system must ultimately be implemented through a more flexible organizational structure and a highly consistent rank, title, and promotion system. If a flexible organization, created to respond swiftly to changes in the external environment, were managed using the rigid multi-level rank system of traditional employees–assistant managers–deputy managers–section chiefs–deputy general managers–general managers–executives, various problems would inevitably arise. Therefore, the recent moves by many companies to simplify job ranks or dismantle them can be seen as highly natural changes in response to changes in the external environment. Recently, Samsung broke away from the typical rank-based framework and introduced a four-tier Career Level (CL), while also standardizing titles to “nim” or “pro,” or calling employees by their English names. Hyundai Motor has also simplified its ranks into four levels, from G1 to G4, with G1–G2 being called managers and G3–G4 being called senior managers. SK Telecom and Hynix abolished the ranks themselves and standardized titles to Manager and TL, respectively.In addition, many other companies, as shown in <Figure 1>, often simplify or abolish their rank systems and unify job titles to establish a horizontal culture.

Furthermore, a considerable number of companies are also simplifying the executive rank structure. Samsung Electronics has reclassified vice presidents and senior vice presidents as vice presidents, Hyundai Motor has consolidated director-level positions, director-level positions, and managing director positions under the title of managing director, SK has reclassified managing director, senior managing director, and vice president under the title of vice president, and CJ has abolished all titles including managing director-level positions, managing director, vice president-level positions, vice president, general managing vice president, and president, and instead refers to executives as management leaders, among other efforts to maximize performance-based and merit-based management. The purpose of simplifying or abolishing job titles for executives and employees is, in most cases, to speed up decision-making, establish a horizontal organizational culture that allows creative thinking to flourish, and secure organizational capabilities to respond swiftly to market conditions.Furthermore, it is also part of efforts to create HR-level conditions that meet the rationality and fairness demands of the MZ generation, which now make up more than 60% of corporate workforce, thereby ensuring easier recruitment and enabling young, capable talent to stay within the organization for longer. However, simply simplifying the rank system and unifying titles does not mean that these objectives can be achieved in every case. This is because there have been cases, such as KT, POSCO, and Hanwha, where attempts like this ultimately failed to bring change and instead reinstated the old rank system. Establishing the system is more important than introducing it. Just because other companies are all trying new changes and a single HR system becomes a trend, blindly following it without adequate preparation is bound to lead to failure. In order to achieve the original purpose through changes in the organizational structure and the rank and title system, the following several points should be taken into consideration. First and foremost, the CEO’s strong determination and the leaders’ change in attitude are important. If you introduce a system that only looks plausible, run it for one or two years, and then abandon it because it has no effect or because there is strong resistance from the members, it is better than not trying at all. The CEO must maintain a strong and consistent commitment to introducing systems continuously and consistently, based at least on mid- to long-term strategies to achieve its objectives. In addition, executives, who are the leaders of the organization, should be able to take on the role of a practitioner rather than a supervisor through changes in their own attitudes, and they should be able to demonstrate flexible and rational, project-oriented leadership within a deputy-team leadership structure. The second is to ensure consistency with other personnel systems. If job ranks are simplified or abolished, motivation through promotion will reach its limit. Therefore, a motivation plan other than promotion must be established. Performance management should shift its purpose from judging individuals to fostering them, and it is essential to establish a reward system that aligns with performance and ability. Through the broadband expansion of wages resulting from the simplification of the rank system, compensation flexibility must also be secured. Above all, to prevent the frequent job-hopping of the MZ generation, it is necessary to be able to establish and operate development and career development strategies that satisfy their desire to achieve a personal vision of growing and successfully building their careers. Third, it must be ensured that a “practical” large-team system and a streamlined rank system can be realized. Members who have long been accustomed to horizontal division of departments and vertical hierarchies may feel anxiety and discomfort triggered by the ambiguity of standards in the flexible operation of organizations and institutions. In doing so, the team—composed of a so-called large team—may end up being nothing more than a nominal large team, with parts being divided again and those parts further subdivided to separate job roles, and at that point, securing operational flexibility becomes a failure.Although the rank system has been simplified into a two- to four-level structure, if one cannot let go of the attachment to the traditional method of motivation through promotion, it can ultimately make a mistake by adding terms such as competency or job grade within the simplified ranks, thereby solidifying a rank structure that is in fact more multi-level than before. To avoid repeating such failures, it becomes necessary to once again emphasize that the leadership each executive demonstrates during the evolving stages of system operation is important. The fourth is that a gradual and sustained effort to change is needed so that all members can internalize such change. The purpose of changing the system should be clearly communicated to all members, and from the system design stage, the opinions of many members should be reflected to design a highly acceptable system. Afterward, it is desirable to identify strengths and areas for improvement through pilot organization operations, and once a highly refined system is finally designed, to expand the improved system throughout the entire organization.The ideal organizational culture we hope and expect can be described as a comprehensive outcome in which all elements of a company—its strategy, personnel systems, practices, financial performance, and physical environment—function together and are commonly established in the members’ awareness, making it impossible to achieve the goal of changing organizational culture without continuous and persistent efforts to internalize institutional changes for individual members. 

Source: Monthly HR Insight. See details