“It’s a problem at a lot of digital companies, not just in REA,” he says. “The people involved in digital are functional experts – product managers, IT, sales – but not very good at line management for a commercial outcomes. They are usually under 40 years old, they have only had two or three jobs, and it takes a long time to learn how to manage people and make a profit.”
“I had a choice. I could either employ line managers and teach them IT, or teach people here to function as managers.” Neither is an easy task, but Ellis decided it was easier to teach line management than to bring managers up to speed with IT expertise.
The company spends a lot on training and development of its executives to improve their leadership skills. “It is managerial lack of understanding of how to manage people that is the first problem,” Ellis says. “The second problem is that way the company is organised.”
Companies usually structure themselves in three ways. They have a profit and loss, a series of businesses that have nothing to do with each other, and may even compete with each other, under the same ownership structure. Alternately, companies create a series of functional divisions – sales, service, product development – that do not relate each other. Finally, companies arrange their management into a succession of sub-committees that have no authority, and push down decisions that have nothing to do with the market.
“Whoever invented the matrix structure caused the greatest human dissatisfaction in the industrial age,” says Ellis. “Add a lack of understanding of human beings and structure yourself in a way that causes human beings to become frustrated, annoyed and competitive, can you honestly sit there and scratch your head and say, ‘I don’t know why we are so bad’.”
The shift
For the past two and half years, the company has been shifting across to the new structure, one in which each of the company’s three divisions – residential, commercial and development – is led by a team of functional line managers that report directly to the eight members of Ellis’ executive team.
Doesn’t that mean overlap between what one sales line manager is doing in residential and what another is doing in commercial? Not according to Ellis. “If there is a duplication, then by definition, those markets are not different markets,” he says.
There is no CEO or managing director for each of the three businesses. “We are now running our business where executive management sits across the top, and we have permanent multi-functional teams in each of our business units. They are set up to run with sales, product managers, IT people, working collaboratively in permanent teams around our line of businesses. The decision-making is pushed to the teams. They understand our strategy and our budget. They know how much money they can spend, and they are set up in 90-days blocks and can check with management team to make sure they are on track.”
Although each team reports to the executive, it is more important that the teams work together, Ellis says. Once a quarter, all three teams get together to keep communication between the business clear.
So far, the new structure involves only IT, marketing and sales. By July next year, it will include every discipline, including finance and human resources.
Measuring results
Ellis says REA’s impressive financial results are proof that the new system is working, but if the results falter, his commitment to the change will not. “That would just mean looking at why our results are down,” he says.
Staff engagement is up, with the company achieving a top-20 ranking from management consultancy TowerWatson in a recent survey of 400 global companies. Ellis says staff turnover is lower than the industry average for IT companies and for sales staff (typically 15%).
In addition, customers are happier too, with real estate agents surveyed independently giving Realestate.com 8.5 out of 10, up from 7 out of 10 a year ago.
The big leadership challenge for Ellis is “deprogramming” executives who come from outside the company. “You have people with the wrong management framework; they are taught to be dictatorial and directive.”
But executives are quick to catch on. “You understand how human beings work, set them up for success, and regularly encourage them to speak and act in that way. Money and success do not make you happy. What makes people feel happy is being part of a community, attached to the company’s purpose.”
