Great speech from the CEO last week about transforming organizational design. S/he moved a bunch of boxes around on the organization chart, closed a plant, laid some people off, and centralized (or decentralized). Your portfolio company is ready for an exit. Think again.
Regular organizational design tune up’s are essential to improving a company’s operating model. Just like our bodies become out of shape without regular exercise and our car engines start running roughly without semi-annual servicing, portfolio companies also face this reality.
Organizational entropy is the silent killer of business performance. Entropy is the second law of thermodynamics – the measure of disorder in a system and a natural process of degeneration. It is an automatic and unavoidable trend toward chaos (and failure). In plain English, things fall apart all by themselves without ongoing attention. Entropy is happening (somewhere, if not everywhere) in your portfolio companies, right now.
Seven Organizational Design Tips for Value Creation
Are you evaluating a company’s value for a possible acquisition? Are you looking for a full or partial liquidity event for your portfolio company? Are you realizing the full potential of every business investment? Let’s look at seven organizational design tips to fully realize superior returns in middle-market private companies.
- Plan for Battle
Business is a war with your competitors. You win the war by creating value, by differentiating your businesses through product and process innovation, reduced costs, improved efficiencies, growth and strong management teams.
Battle planning is the visioning and execution of your investment growth objective. Your weapons are financial and human capital. Your skilled workers are your elite troops. Entrepreneurial units are your special forces. Your Managing Directors are your generals. Designing a portfolio company for battle is more than hiring good people. Competition requires a combat attitude; arranging plans, structure, troops and processes to consistently win fights. Victory is achieved when you sell at a profit. This is what organizational design should look like.
- Design Properly
Match the form of the portfolio company as closely as possible to its goals.
Poor organizational design results in friction, conflict, unclear roles and misused resources. Structural over-complexity causes slow strangulation. It confuses employees, suppliers and clients, hinders product advancement and limits profits. Bottom line – it’s too expensive and slows down productivity.
The configuration of functions, positions, skills, processes, talent and performance to business priorities is crucial to achieving growth objectives. You may have had the right model earlier, but it deteriorates over time. The cure for corporate entropy is ongoing alignment; achieving and maintaining direct connectivity between growth objectives, business strategy, structure and process.
- Maximize Agility and Innovation
Business agility is the rapid response to change. It is the ability to quickly identify and adapt to market, environmental and technological changes in productive and cost-effective ways. It is being responsive to a VUCA (volatile, uncertain, complex and ambiguous) world. Continual enhancement and adaptation (and the skills to do so) are vital to every portfolio company.
Let’s compare three corporate icons. On one end of the scale we have Kodak. Kodak has become a Darwinian poster child, a classic example of failing to adapt to changing technology and customer needs and falling into bankruptcy. On the other end of the spectrum we have Cisco and DuPont (for example) who are proactively and energetically shifting, realigning and transforming to stay in the forefront of organizational design.
- Simplify Decision Making
Effective decision making is a key aspect of real-time command and control. Great businesses make great decisions.
We know of one company who prides itself on being a world leader in innovative, high impact, speedy and cost effective solutions. However, their decision-making process is bureaucratic and stultified. Projects run months behind schedule. Executives focus on divisional success and resist corporate-wide initiatives. Middle managers concentrate on perfection, with multiple rounds of word smithing for every PowerPoint presentation. Instead of clinically moving from decision point A, to B to C to reach result D; they often over-research point A, over-analyze Point B, second guess themselves on Point C, and then go back to Point A to start over – never reaching D. All of this costs time and money.
View the decision making process as an entity unto itself. Do you know the decision making abilities within your portfolio companies? If not, then you need to simplify your organizational design today.
- Streamline Processes
Business Process Evaluation should be a core skill in your organizational design. It is an elemental rethinking of workflow to achieve improvements in critical measures of performance such as cost, service, quality, and speed.
Map out the control environment (major functions and activities) within key businesses; R&D, engineering, manufacturing, sales, marketing, distribution and back-office administration. Identify and link the hierarchy and key roles (jobs / positions) that perform each process step. Simplify workflow. Ruthlessly eliminate redundancies by removing layers, approvals, steps, and tasks that do not directly add value.
- Optimize Geography
Are your portfolio company operations local, regional, national, international, global, multinational, or transnational? What is your organizational design? You know where their locations are, but do you have the optimal geographic model for key markets? A global company sells worldwide but is centralized, concentrating core work activities in one location (to emulate effectively in satellite locations). An international company creates centers of excellence or hubs for each major product or service worldwide. A multinational operates in a decentralized manner, with customized operations in specific regions.
Transnational companies are the highest form of corporate evolution, with centralized operations in the home locale mixed with the economic efficiencies of distributed optimal sourcing. Optimal sourcing locates operations in the place that brings the greatest advantage in terms of client / user contact, cost efficiency and/or skill need.
- Manage Talent
Portfolio companies are in dire need of skills to support future growth. This growth is the foundation of value creation. Managing your talent and talent stream is vital to equity appreciation. Achieve the biggest bang for your buck by having the right people in the right numbers with the right skills in the right place performing at a high level – every day.
- Apply the principles of supply chain management to Staffing and Recruitment programs.
- Fully integrate strategy and business planning with workforce plann Do they have the appropriate mix of staff with skills in management, finance, procurement, engineering, sales and marketing etc. and does this mix continuously align with strategic priorities?
- Take the long view towards talent optimization, not just short term band aid fixes to reduce next quarter costs. Layoffs aren’t a panacea.
- Create a flexible workforce. Not every worker has to be a full time, permanent employee with full benefits.
Other Organizational Design Considerations
Has Your Organization Changed?
Have you recently grown or downsized?
- Has there been a merger or an acquisition?
- Has your mandate changed?
- Are you delivering new programs?
- Are you meeting your goals?
- Is there new leadership?
If so, the Organizational Design may no longer fully match the needs of your program or business. McConnell HRC will ensure that your Organizational Design is fully aligned with your strategic plan in order to achieve business goals.
Do You Have the Right Jobs in Your Organizational Design?
- Are the jobs in your organizational designed properly?
- Do you have the right skills?
- Do you have the right number of jobs?
- Do your job titles make sense?
- Does every employee know who their boss is?
- Do they know how their role directly contributes to your strategic goals?
- Are your employee resources fully utilized?
If not, then the design of the jobs, roles and functions within your organizational design may no longer fully match the needs of your program or business.
McConnell HRC will ensure that your Organizational Design is fully aligned with your strategic plan. We assist clients in the review, analysis, and re-structuring of their organizational design in order to fully align staff roles and functions with your business goals, strategic plan, vision and mandate. The result is more streamlined operations and better achievement of program and business results.
Is Your Organizational Design Obsolete?
- Is your organizational design like an old family house? One room added at a time over the years?
- Is it still functional?
- Or it is cumbersome and inefficient?
- How well does it serve your business requirements?
If your structure is preventing your business from achieving its goals, perhaps it’s time for renovations. Or a brand new house.
McConnell HRC will ensure that your Organizational Design is fully aligned with your strategic plan. We assist clients in the review, analysis, and re-structuring of their Organizational Design in order to fully align staff roles and functions with your business goals, strategic plan, vision and mandate. The result is more streamlined operations and better achievement of program and business results.
We’ll even help you move! That is, design and deliver an effective implementation plan to transition your staff to a new organizational design.
Does your Organizational Include an Organization Chart
At a more practical level, there are several principles of Organizational Design to consider when it comes down to actually preparing your organization chart. These are:
- Division of labor (departmentalization and/or specialization) – a production process in which a worker or group of workers is assigned a specialized task in order to increase efficiency.
- Departmentation (functional, purpose and/or location-based) – the process of classifying an organization on the basis of departments or similar activities, to facilitate planning and control.
- Coordination and control (chain of command, span of control) – the processes of establishing how the organizational design will be structured.
- Authority and Responsibility – defining for each position in the organizational design what are their responsibilities and what formal authority they have been delegated.
- Line activities versus Staff activities – Distinguishing what responsibilities directly deliver the products and services of the organization from those are are established to provide support services to line roles and positions.
- Job design – Job design refers to the way that a set of tasks, or an entire job, is organized. Job design helps to determine what tasks are done, how tasks are done, how many tasks are done, and in what order the tasks are done.
Organizational Design involves a systematic process with several factors. Our approach and methodology helps you get started. Organizational Design can be daunting, if not planned appropriately and not based on a viable model. Give your organization the advantage of a well planned foundation by utilizing a practical approach to Organizational Design.
Alison Sargent and Tim McConnell are Human Resources and Organizational Design consultants with McConnell HR Consulting Inc. in Ottawa. They provide strategic HR and OD advisory services to Not-for-Profit organizations and NGO’s to enhance organizational effectiveness. Tim can be reached at Tim@McConnellHRC.com.
Tim McConnell, MPA, SPHR