Creating Organization Designs that Matter

What is the first thing you felt when you heard that your company will undertake a full scale company reorganization? Chances are that majority of you felt first anxiety and concern over joy and excitement, which is a very natural response to any kind of change. Our resistance to change is, after all, so utterly human.

Unsplash / John Towner

Then again, looking at the subject from digital transformation viewpoint, changing business landscape requires changes in strategy and business models which will sooner or later demand also changes in company structure. To a vast majority of companies and essentially all which have been established before 2010, some sort of transformation is laying ahead.

As change is inevitable and the likelihood of your need to undertake a company reorg is rising, I chose to spend some time looking into the subject. Here is what I found out.

According to a McKinsey research report from 2016 where more than 1800 executives were interviewed, it shows that massive 80 % of company reorgs fail to deliver the value expected within the given transformation timeframe. 10 % of these transformation programs managed nothing but severely damaging the company. Turning it other way round, only 10 % of all company reorgs are considered successful! [1]

That is a promising start but what really blew my mind was this: only 15 % of executives set detailed business targets for the reorganization. If you don’t evaluate costs and benefits of the restructuring, and set detailed enough business targets, such as increasing profit margin by x percent in three years or reducing cycle time by xx percent, how do you measure if you are moving in the right direction?

As strategy outlines direction for the reorganization, it starts by building digital transformation roadmap. As part of planning the transformation, there should be possibility to invest in finding out the current weaknesses and strengths of your organization. Why would you fix something that isn’t necessarily broken? How can you tell, which parts of the organization are fine as is, and which will need to undergo a change? Many will contend to the viewpoints of the senior management but are you sure you’re getting the full picture? Why not take the time to conduct a survey for the whole company and all of its employees for a more holistic view? After all, if you are willing to invest in a massive reorganization, wouldn’t you like to know all details before embarking on that journey?

Quest for perfect organization

Reorganizations are problematic if they are initiated out of desire to shake things up, which the McKinsey research showed was the case in 17 % out of all reorgs. Getting it right is one thing but trying to make it perfect is impossible. There is no such thing as a perfect organization design so you can stop your quest for finding one. Right now.

McKinsey research showed that doing a reorg, 60% of the time resulted in lower productivity because of the stress and turmoil caused by the unknown for the employees. We tend to forget people and processes while we are busy detailing new reporting lines.

Any organization design model is a compromise at best which requires weighing different alternatives, pros and cons of each possible design but the focus should be on the how the new organization design works, not what it looks like on paper.

Jumping through the hoops

So why do we go changing structure in the first place? Do we move people from one box to another in an attempt to ease collaboration, find better synenergies between different business lines or what exactly?

Nowadays it is considered a must that we create cross-functional teams which necessitates major changes in organizational structure. In a cross-functional organization instead you would be able to cooperate and co-create with your colleagues without any limitations bound by P&L. The real trick, is for different disciplines to learn how to work together instead of people working separately and in process queues.

Let’s consider an example. Traditionally when creating new product/service, you would involve people from product/ service development, finance, HR, delivery, marketing & sales all in due course as in an assembly line. Picture it as a process flow chart, the product moving from one box to the next, through the whole value stream and dozen tollgates before ending up to the customer. And all this, jumping through the hoops, took you maybe 12-18 months?

Now, instead of sequencing all the activities needed in order for the product cycle to be completed, you engage all these functions from the get-go. I mean, literally, product team sitting together with HR, marketing & sales and delivery working on their tasks for the co-owned goal simultaneously. As a bonus, add customer to the equation not only afterwards but before, in the middle and throughout the process.

Now that is what I call a productive reorganization.

[1] Getting Reorgs Right, Harvard Business Review, November 2016