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Your organization is a good expression of your strategy, so get it right

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How you allocate talent and prioritize functions directly reflects your business strategy.

Geoff Wilson

What is an organization, really? It’s almost that time when many companies begin hard discussions about budgets for next year. In most cases, that conversation crosses at least partially into the topic of organization structure, so it’s good to think about what an organization really is.

The old-school theory of the firm argued that firm structures form at the point where owning a service is more efficient and valuable than buying a service from another firm. It’s usually more efficient for you to own your own sales force than to try to get alignment with a third party to outsource sales (or to hire sales people like day laborers). Therefore, one discussion about organization structure must consider the own-vs.-rent decision.

On another axis, a firm really exists to do two things: capture opportunities and manage risks. Those two objectives aren’t always mutually exclusive to individual parts of the organization (for example, a CEO has to do both, as do many other people in the organization), but they are the two considerations when designing an organization.

A third axis of organization decisions involves what I’ll call centering. In a given company, there is efficiency to creating centers of skill in some cases, and to distributing skill in others. You might easily centralize procurement operations, but you might need to keep your sales force distributed and close to the customer in order for it to be most efficient. This is the old division-of-labor argument that is subtly written into every organization: Do you expect your general managers to be great at HR and IT, or are those functions better handled by true experts elsewhere in the organization (or by outsiders, if you’re thinking about own vs. rent as noted above)?

The interesting discussion during the annual budget cycle should then be on four levels:

  1. Have we established the right boundaries for our firm? Should we stop doing some things in house that somebody else can do effectively? Should we rent vs. own? Many companies have decided to outsource activities that were traditionally in house. Information technology is an example of a function that is easily outsourced to a third party that is both better and more cost-effective than in-house operations. One cautionary note: Don’t outsource your competitive advantage.
  2. Have we covered key risks with the right organizational investment? Legal, human resources, accounting, finance, credit, and many other areas are examples of risk-management functions (in most cases). They are investments made to manage risk, not necessarily to capture opportunities.
  3. Have we covered opportunities sufficiently? This is usually the toughest of these questions for companies to answer with confidence. Do you have the right investment in product development, engineering, sales, and other potential revenue-producing resources. I’m always struck by companies that consistently operate understaffed—at least a person or two down—on their sales force, but never allow their accounting function to be shorthanded.
  4. Have we centered and distributed functions appropriately? Are there competencies that need to be concentrated and improved? Are we properly structured to ensure we get the best of those competencies and the best distribution of their use across the company? A good example of this can be R&D staff. They may be best placed in a center that can allow quick knowledge sharing and effective processes vs. having a broad set of individual researchers spread throughout a company. But they also might be best positioned right next to the customer in a distributed form. Your mileage may vary.

As you look at your organization, can you answer these questions? I’m not sure most management teams can. Like my anecdote about companies with fully-staffed accounting functions yet people-starved sales functions, I see resource imbalances in organizations all the time. One company I encountered had an accounts-receivable function that was staffed with excellent people, and many of them. In fact, the company had more and better talent evaluating customer-credit decisions than it had in pretty much any sales function. That allocation of talent says a lot about management’s priorities.

I’ve noted in past posts that your budget is the best expression of your strategy. It turns out your organization is a pretty good approximation of your budget.

Now, what do you think? Share your thoughts on this topic.

Ooh, That Smell!

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Do you know what your organization smells like?

 

Alright, so I’m a biology major from wayback…and sometimes biological reality meshes with organizational reality far too easily.

It’s the tail end of the Thanksgiving weekend.  As an encore to the festivities, we are having some family over for a holiday meal this afternoon.  I have spent this Sunday morning roasting a Wilson-family signature wet-brined turkey while simultaneously boiling the well-picked carcass of a Wilson-family signature cherry-wood smoked turkey that we consumed earlier in the holiday festivities.

Yes, that’s a bird in the oven and a pot of bird essence boiling on the stove.

My house smells exceptional.

Except, I only know that because my wife just returned from a brief outing and told me so.

The olfactory sense being what it is, I’ve lost all sensitivity to the ambient aromatic goodness that is in my house. My sense of smell is saturated. It took someone coming in from the outside to tell me how good it smelled in here.

And, there’s a lesson in that.

On getting stale…

You know what?  People become stultified. That is, they lose enthusiasm and initiative after too much of the same.  They do it in both good and bad circumstances.

In cultures where the air is heavy, people stop noticing.  I’ve been in places where the sword of Damocles hung over the head of every executive, casting a pall over the whole organization. They eventually stopped really noticing–until some outsiders forced a change and the more perceptive around them realized how much the prior regime really stunk!

Their sense of smell for the badness was saturated. They started focusing in on retirement, or the next job, and forgot how many years they sank in the stink.

Happens all the time.

The funny thing is, the same thing can happen in positive cultures.  People become desensitized to how good they actually have it and constantly yearn for the greener pasture next door.  I’ve been in one of the greatest organizations in the world and listened to grievances that would lead you to think it was a prison. People stopped noticing how brilliant their colleagues were and how interesting the work was.

During that time, I had a (very prescient, it turns out) mentor tell me that “people can’t ever tell how great it is here because we focus on improvement all the time. And, then they leave and it’s the best place they ever worked.”

He was right.  But, we were positively desensitized.  We had the organizational “smell” equivalent to a Thanksgiving feast, but couldn’t’ tell.

And, it leads to the question:  Do you know how your organization smells?

About the only way to tell is to have someone check it from the outside.  Unfortunately, as I’ve subtly noted, organizations full of stink rarely want to confront reality; and organizations reeking of positivity only focus on how to get better (which, in its own way, is a mild stench if used improperly).

So, who is your outsider, providing you with a fresh nose?  If you are an executive and you can’t answer that question, then how do you know what your organization smells like?

I’d be curious how you tackle this question. Please comment below. 

[and, yes, this was written between bastings spaced exactly 17 minutes apart]

 

 

The Joy and Pain of Bureaucracy

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Bureaucracy is bad…when it’s self serving. 

The Financial Times published an excerpt from David Graeber’s book ‘The Utopia of Rules: On Technology, Stupidity, and the Secret Joys of Bureaucracy.’

Here’s the LINK.

In the article, Graeber outlines how “bureaucracy,” typically a word used as a slur by die-hard capitalists, is actually the source of a covert love affair.

To wit (with my emphasis added):

“In this sense, bureaucracy enchants when it can be seen as a species of what I like to call “poetic technology” — when mechanical forms of organisation, usually military in their ultimate inspiration, can be marshalled to the realisation of impossible visions: to create cities out of nothing, scale the heavens, make the desert bloom. For most of human history this kind of power was only available to the rulers of empires or commanders of conquering armies, so we might even speak here of a democratisation of despotism. Once, the privilege of waving one’s hand and having a vast invisible army of cogs and wheels organise themselves in such a way as to bring your whims into being was available only to the very most privileged few; in the modern world, it can be subdivided into millions of tiny portions and made available to everyone able to write a letter, or to flick a switch.“

I’m no fan of useless structure or artifice.  But I do like effective structure and relentless clarity.  Sometimes, a little bit of engineered bureaucracy provides that.

Further, in my professional experience, the irony is this:  Those who decry “bureaucracy” the most tend to be the ones who are protecting their own, personal, “democratisation of despotism.”  They cry out against control that is not their own…regardless of its impact on effectiveness.

The real measure ought not be the amount of bureaucracy applied to a given problem, but whether the bureaucracy actually makes you or your organization more effective.

Perhaps one person’s bureaucracy is merely another person’s way of making sense of the world.

It’s bad when it’s self serving.

 

 

Coffee and a Do Not: Span Breaks

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For all the benefits of being a senior manager in a company, far too many management positions, even very senior ones, come with limited authority… Avoid filling or creating them.

In the grand scheme of things, being senior is a nice thing. Having position, especially position that others believe is influential and interesting, can be very rewarding.

However, in many organizations, particularly those focused on hierarchical control and “execution,” management positions–even very senior ones–can start to look like information channels vs. leadership roles.

They start to look like “span breaks.”  Literally they are a funnel for the span of control in an organization and not for the efficient operation of the company.

McKinsey defines a span break as a manager who relays information from executives to workers.  In an only mildly backhanded definition of reality for these sorts of managers, one McKinsey article explains that:

“Such managers keep an eye on things, enforce plans and policies, report operational results, and quickly escalate issues or problems. In other words, a [span break] manager is meant to communicate decisions, not to make them”

The result?  Managers in these positions play the role of observer, reporter, and monitor.  They may have “authority” on paper, but they know where decisions are made…and it’s at a higher level than them.  They spend more time in PowerPoint preparing for others to make decisions than they take making decisions.

Sometimes companies create these kinds of positions willfully as a means of developing people.  Most of the time, the created position is, unfortunately, an unrewarding one. If it is offered without a developmental time horizon, it can be career purgatory.

One firm’s leadership–intending to create developmental roles for high potential executives–consolidated multiple businesses into single senior management positions reporting directly to other senior management positions (in football speak, this is the old “I” formation). In the process, the company effectively re-layered its hierarchy with a redundant layer of management–not a fun thing for the professionals attempting to make a difference from those roles.

More often, the existence of span breaks in an organization represents brokenness in the leadership culture.  Top managers skip levels, second guess, and generate decision fear to the point where their subordinates only bring them decisions to make–and then, you suddenly have a span break.

It’s not the way the organization works on paper, but when you ask around, you realize that “all roads go to Rome.”  Often the decision maker is a tribal leader or highly controlling (and often excessively insecure) senior executive.

One semiconductor materials manufacturer’s CEO was so prone to second-guessing on particulars of any decision that his subordinates slowed their decision pace to a crawl while they funneled information through the CEO in a long series of “trial closes” for their own decisions.  The organization, up to and including its most senior business and functional leaders, was paralyzed by a smart but highly detail-oriented executive.

Do you have these issues in your organization?  Have you taken steps to create role clarity and real authority?  If so, what has worked?

Don’t create span breaks in your organization.  Devote time to real development of people through the development of meaty roles vs. symbolic ones; and ruthlessly eliminate actions that turn leaders into information carriers.

Most of all, don’t be a span break yourself.  Such is, in the most basic of terms, a bureaucratic pursuit.