Understanding and reducing the coordination tax

A team of software engineers is about to launch a groundbreaking new product in a bustling office in Berlin. 

Everyone is excited, yet a less glamorous reality is unfolding behind the scenes. 

These engineers attend too many meetings and daily stand-ups, engage in back-and-forth emails, and spend hours updating project management tools to make sure everyone is on the same page.

So, even though they're trying their best, the project is delayed because of a hidden burden plaguing many modern workplaces: the coordination tax.

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What is the coordination tax?

Coordination tax is not a literal fee imposed by governments but rather a symbolic cost that organizations pay in terms of time, energy, and resources. It’s the price of ensuring that all parts of an organization work together smoothly. 

While collaboration is vital, poor coordination can silently drain productivity, kill innovation, and inflate operational costs. Business today is all about efficiency and speed, so understanding and minimizing coordination taxes is paramount.

This phenomenon can manifest in many different ways: complicated communication channels, back-to-back meetings, and repetitive tasks. Unlike tangible expenses, coordination tax is often overlooked, making it very detrimental for productivity.

A 2019 study by Harvard Business Review found that the average executive spends nearly 23 hours per week in meetings (up from less than 10 hours in the 1960s). While some of these meetings are important, many could be avoided (remember the mantra “this meeting could have been an email?”) or simplified, reducing the coordination tax significantly. The time spent coordinating activities is time not spent on actual productive work, leading to what could be considered an "opportunity cost" of lost innovation and efficiency.

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What causes the coordination tax?

As we mentioned, organizations accumulate coordination tax for many, different reasons:

• Communication overhead: In big teams, communication channels can grow exponentially, creating miscommunication, delays, and information overload. The more people involved in a project, the more time and effort are required to ensure everyone is on the same page.
• Siloed departments: When departments operate in isolation, they may duplicate efforts or pursue conflicting goals, leading to wasted resources and misaligned strategies. This occurs mainly in large corporations where inter-departmental communication requires navigating complex bureaucracies.
• Redundant meetings: Meetings can take up a significant portion of the workday. In an internal study, Microsoft discovered that employees spent more than 8 hours a week—equivalent to an entire workday—just preparing for meetings. When meetings become routine rather than purposeful, they add to the coordination tax.
• Hierarchies: In organizations with multiple layers of management, decision-making processes can slow to a crawl. Each additional layer of approval or review adds time and complexity, increasing the coordination tax.
• Lack of clear roles and responsibilities: Ambiguity about who is responsible for what can lead to confusion, duplicated efforts, or neglected critical tasks.  
• Tool fragmentation: The more digital tools we use to improve productivity, the more difficult it can become to coordinate our work. When we rely on too many tools, we waste time switching between them and ensuring they all work together. Each tool has its notifications, updates, and learning curves.

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The impacts of coordination tax

The consequences of a high coordination tax are far-reaching. 

According to a 2020 Project Management Institute (PMI) report, organizations lose an average of $109 million for every $1 billion invested in projects due to inefficiencies, many of which stem from poor coordination. 

Other effects include:

• Reduced productivity: When too much time is spent coordinating, less time is available for focused work. A study by Asana, a leading work management platform, revealed that employees spend 60% of their time on "work about work"—tasks like communicating about functions, searching for information, or attending meetings—rather than on actual productive activities.
• Employee burnout: Constantly juggling coordination tasks can lead to stress and burnout. A Gallup survey found that 23% of employees often feel burned out at work, with inefficient work processes being a significant contributing factor.
• Delayed projects: Projects often suffer delays due to the time required to align various stakeholders. 
• Increased costs: The direct financial impact of coordination tax can be substantial. McKinsey & Company estimates that inefficient collaboration costs the global economy nearly $1.5 trillion annually. This includes costs associated with delays, duplicated efforts, and the need for additional resources to manage complexity.
• Innovation stifling: Creativity and innovation can suffer when teams get bogged down with coordination tasks. Employees who spend their time in meetings and responding to emails have little time for brainstorming new ideas or developing innovative solutions.

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Strategies to minimize coordination tax

While coordination tax is a pervasive issue, it is not insurmountable. Organizations can implement different strategies to reduce this hidden cost. Let's explore them:

• Streamlining communication: Simplifying communication protocols and reducing the number of tools used it's key if we want to reduce coordination tax.
• Clarifying roles and responsibilities: Clear role definitions and accountability structures can help reduce confusion and ensure that everyone knows what is expected of them.  
• Reducing meeting load: Instituting policies to limit the number and duration of meetings can free up time for more productive work. Amazon's "two-pizza rule," where teams should be small enough to be fed by two pizzas, is a famous example of how reducing meeting sizes can improve efficiency.
• Encouraging cross-functional teams: Breaking down silos by fostering cross-functional collaboration can lead to more holistic and efficient processes. Renowned for creativity, Google frequently assembles interdisciplinary groups to address challenging issues, promote varied viewpoints, and minimize duplication.
• Adopting agile methodologies: Agile practices, such as daily stand-ups and sprints, can help reduce the coordination tax by promoting continuous, focused collaboration. Tech giants like Spotify and Netflix have implemented agile methodologies to uphold productivity and foster innovation.

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The role of technology in addressing coordination tax

Dealing with various tools can add complexity, but implementing the appropriate technology can simplify processes and decrease the need for excessive coordination. AI tools are increasingly used to forecast potential obstacles, automate day-to-day tasks, and improve communication flow.

For example, IBM uses AI in project management to make forecasting and resource allocation more accurate, which reduces delays and costs. Additionally, remote work platforms like Zoom and Microsoft Teams have features such as automatic meeting transcriptions and integrated project management tools to help minimize coordination challenges.

‍deskbird also provides personalized office attendance recommendations using AI based on individual preferences, coworker attendance patterns, upcoming events, and booking trends.

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Conclusion

The negative effects of poor coordination go beyond just financial implications and affect productivity, employee welfare, and innovation capabilities. Identifying indicators of high coordination tax and employing methods to reduce it enables businesses to increase efficiency and ultimately deliver improved results.

The challenge is not to eliminate coordination—indeed, collaboration is essential for success—but to ensure it is as efficient and effective as possible. 

In the words of Peter Drucker, "Efficiency is doing things right; effectiveness is doing the right things." 

By reducing the coordination tax, organizations can ensure they are doing both.

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