Is Your Organization Structure Really the Problem?
On Thanksgiving morning in 2020, I stepped out of bed with a cringing back pain that would not go away. The pain felt nearly identical to what I had experienced six years prior to getting back surgery. While completely frustrated and angry at this recurrence, I was crystal clear on what needed to happen—have another surgery and have it fast. However, my doctors did not share my view or sense of urgency. I was instead reminded that there are many factors at play rather than a single root cause to my back pain which all needed to be assessed to determine the best go-forward approach.
My personal experience reminds me of my work with CEOs who are frustrated and in pain because their business is not performing, and organization restructuring is their version of surgery. It’s tangible, visible and (can be) fast. Often, however, too much emphasis is placed on who reports to whom and creating a new organization chart. And so, the advice given to me rings true here as well.
I have always heard that 75% of major restructurings do not yield the financial results expected. For that reason, it is critical to look at organization redesign holistically. When we work with clients looking to quickly scale their businesses 2-3x over a 3-year window, one of the first questions we ask is “are you structured the right way to achieve your growth thesis”. Answering that question raises several others that in turn informs Summit’s approach in assessing and helping prepare companies to rapidly scale with a focus on five core factors:
Strategic Intent: How is the business planning to grow and differentiate? What role do acquisitions play? New product/service offerings? New customer segments? New geographies? Getting structure right must start with strategy.
Cultural Context: If culture eats strategy for breakfast, then it eats new organizational structures for dessert. Understanding the behaviors that are rewarded and reinforced, either intentionally or unintentionally, and the values they serve is critical to understand when determining whether a new structure will succeed or fail.
Formal Structure: This is where most leaders want to start. Defining the macro-organization structure to address P&L ownership, customer segmentation, enabling functional support, geographical reach, and field versus HQ needs. There is no such thing as a perfect structure, rather it’s an exercise in trade-offs, based in large part around those implications associated with the first two factors.
Operating Model: If structure represents the schematic of an organization, the operating model serves as the instruction manual to make the schematic work most effectively. It also serves as the insurance policy against any weaknesses identified in the agreed formal structure. Elements within this area include the role and composition of the senior team, the how, where and whom of decision making, interdependencies and hand-offs between functions and business units, the cascading of strategy vertically and horizontally, and the cadence and vehicle for reviewing and managing business performance. Many companies lose steam after designing structure and underinvest in defining the right operating model to work best for the chosen structure.
Talent and Capabilities: No organization design effort is complete until you have the talent to execute the roles defined within it. While most focus centers around technical capabilities, leadership capabilities are just as critical, as no company can restructure their way out of bad behavior. As referenced in a recent issue of HBR, in Reinventing Your Leadership Team, there’s a proliferation of new C-level roles, including Chief Digital, Customer, Experience, Design, fill-in-the-blank-Officer roles requiring continued vigilance on critically assessing to ensure companies have the correct talent and leadership required to make the right structure work.
To be clear, there are several scenarios when looking at structure is most appropriate. These include the following:
- A significant acquisition that adds a unique capability to the organization and keeping it autonomous delays (or even dilutes) value creation.
- The serial acquirer of businesses over a short time period with minimal integration where either functional redundancies, inconsistent processes have flourished, creating increased complexity, or cross-sell opportunities that underpinned the acquisition thesis have failed to materialize.
- A significant shift in strategy or business model. We see this particularly relevant for companies looking to tech-enable or digitize their model from fee-for-service to more predictable subscription models more commonly seen in SaaS businesses.
- Rapid growth with little change in structure. Perhaps the most proactive approach is inquiring about structure after significant growth over the last several years to see what still applies or no longer serves the business anymore.
- Preparation for change in ownership and/or IPO. Part of the sale process is creating confidence that the company is best organized now to deliver on the future growth prospects, not its current performance.
With all of this said, even for the situations where structure is the first question being raised, it doesn’t necessarily mean it’s the first lever that should be pulled. Rather it requires a holistic approach to assessing all five of these factors in tandem to get to a model that ensures sustainable, effective change.
I wound up not getting back surgery, but rather committed myself to a disciplined regime of physical therapy. It took four months, but I am thankful every day for the course of action that I chose, as I learned a great deal through the process and feel that much more prepared for whatever is next.