A Blog by Jonathan Low

 

Feb 13, 2017

Why Reorganizations To Enhance Productivity Often Aren't Ambitious Enough

Increasing organizational productivity is, by its nature, disruptive. And managers often balk at the cost, both financial and operational.

But successful enterprises understand that the instincts which inspired change should be supported - and are worth the price. Because stasis is usually far more expensive. JL  

Ron Carucci reports in Harvard Business Review:

The success rate for organizational redesign efforts is less than 25%. (It) is not a static, one-time event. It is an ongoing management discipline. Competitive work must be organized for effectiveness and mastery. Designing optimal organizations takes hard work, sacrifice, and significant trade-offs. They must be balanced against the realities and constraints of real life.
For many executives, the concept of organization design is an oxymoron. They are so consumed by working in the organization that they lack the patience to work on the organization. They don’t do the intricate, complex work of configuring their organization to execute strategy. Instead, they shift boxes on an organization chart, bolt on more resources that were lobbied for by a zealous executive, or cut costs across the board. They focus on communicating messages more inclusively or reassigning stronger leaders to troubled departments.
These are surface-level, counterfeit solutions, and they do more harm than good. And yet when it comes to reorganization, they’re the norm. According to one McKinsey study, the success rate for organizational redesign efforts is less than 25%. It’s much more common for reorg efforts run out of steam before completion or fail to yield improvements once they’ve been implemented.
These numbers reflect a fundamentally flawed approach to thinking about systems. Organization design is not a static, one-time event. It is an ongoing management discipline; as a living, breathing organism, your organization must be continually refined and improved.
Intentional design can improve the health of the organization, position your team for success, and make life better for everyone. Such design should motivated by a desire to:
  • Realize the benefits of scale, bringing together people who perform similar work.
  • Improve decision making by ensuring information can move easily across the organization.
  • Empower people by shaping behavior and motivating them to perform and contribute as the organization requires.
In my experience, the organizations that succeed at organization design tend to do five things:
Organize around competitive advantage. Organizations must answer critical questions of identity: What sets us apart? What are our markets? Who is our customer? It may sound obvious, but it’s astounding how often these questions go unasked. Without critical self-reflection, organizations build silos, bureaucracies, and cultures that impede rather than enable performance. If your competitive advantage is responsiveness or speed, the organization must be built for that. If it’s quality and service, that’s a different configuration. A narrowly defined set of critical choices is the foundation of good organization design.
Create boundaries between competitive and necessary work. Competitive work — work that directly drives, or supports, the ability to compete — must be organized for effectiveness and mastery. This is the work you have to be better at than anyone else.
On the other hand, necessary work — tasks that you have to do on par with anyone else, or in compliance with regulatory requirements — should be organized for maximum efficiency. Problems happen when competitive and necessary work get too close, and the urgency of the everyday undermines the strategic work of remaining competitively focused. To prevent this from happening, create boundaries around geographies, functions, customer segments, service or business lines, or a combination of them (a matrix). Again, those choices must be driven by strategic requirements noted above.
Solid boundaries foster smooth coordination inside those groups. They also deepen expertise and enhance execution of a defined set of activities. The challenge with any set of boundaries is that it creates the need for coordination between groups. Without planning for how work will be coordinated and integrated, the grouping decisions become meaningless.
Focus on the seams. The vast majority of an organization’s competitive muscle will reside across units, more so than within them. Great service sits at the intersection of sales, customer service, and supply chain. Product innovation sits at the intersection of R&D, marketing, and business intelligence. Where these seams come together, work must be tightly linked to ensure coordination is not encumbered by the boundaries between groups.
Repeatable core processes, technology and information sharing platforms, and cross-functional teams are all design options that help create seamless linkages. Hierarchy, as an example, is simply a way to link vertically integrated tasks. Sadly, it’s usually the only thing that changes when people just change the “org chart.” Creating roles that cross organizational boundaries to coordinate with other parts of the organization is also a way to link work. Building effective linkages is one of the strongest ways to ensure organizational changes succeed.
Distribute decision rights. How decision rights are distributed through the organization can promote desirable behaviors and avoid negative ones. A good decision architecture helps clarify everyone’s expectations about what they are accountable for. And most reorg efforts never touch it. It is foundational to how an organization works: It’s the set of authority structures, roles, and processes by which critical aspects of the organization are managed. More than just meeting cadences, it includes how strategy is set and prioritized, how resources are allocated, and how performance is measured. It includes the planning and building of P&Ls and budgets, managing the portfolios of products, clients, and talent, and the long-term financial and strategy processes that plan for results.
While overhauling all of this is a huge task, it’s vital for making sure any reorg actually sticks. The ability to execute clear decisions is the central activity of an organization design, the activity from which the others all flow. It gives a predictable cadence to a business so that all of the interconnecting gears are working in coordinated fashion and the strategy is being executed and monitored appropriately. Fail to reform this, and your organization may simply retrench to silos and border wars, and fail to achieve common goals.
Design clear, meaningful roles. It’s common in organizations for people to respond to the question, “So what do you do here?” with something like, “Well, there’s what my job description says, and then there’s what I do every day.” Jobs, like organizations, must be carefully crafted not around people’s preferences or idiosyncrasies, but around needed work and outcomes.
The “mitosis” factor of organization growth usually has jobs “divide” the way cells do as humans form. Such mitosis is one of the worst ways to scale an organization. It creates both costly redundancies and soul-sapping jobs. Some people’s jobs may become boring and narrow, while other employees may find themselves juggling dozens of unrelated tasks. In other cases, organizations may bend the necessary work of a role to fit the employee within that role, diluting what needs to be done and settling for what can get done.
Roles should be designed as widely and largely as possible so that people are continually challenged and fulfilled. Stretching people’s skills sustains a feeling of personal growth and satisfaction. It also enables great organizational breadth, something vital for when people are ready for expanded leadership responsibilities.
With all of these approaches, remember to build an organization that you can actually implement. When you go to assign your talent base to your new design, if you are left with too many people “to be determined,” you have built a design that exceeds what you can implement. Designing organizations for “super humans” never goes well. It has to be a design that can stand up in the real world. That’s not an excuse to compromise, take an easy way out, or accept the mediocre talent you have to work with. There has to be a balance. To get further, design for your ideal state, and then adjust accordingly.
Designing your optimal organization takes hard work, sacrifice, and significant trade-offs. They must be balanced against the realities and constraints of real life. But thoughtful design work pays great dividends and helps avoid the painful statistic of a failed reorg.

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