Wednesday, May 27, 2009

Musings On Organizational Strategy

First off, I’m somewhat of a heretic regarding organizational strategy. In a prior life the firm I was with had an organization strategy practice led by a wizened partner who tended a special computer program that fed on organizational survey data and spit out solutions. Double, double toil and trouble, fire burn, and cauldron bubble. Well, that’s what I thought of his program. The wizened partner’s perspective was a bit different. I always remembered him saying, “The first law of organizational strategy is that structure follows strategy.” It took me 25 years to figure out that this was a bunch of crap. That old and tired firm made a lot of money on organizational strategy because they had a system for churning out what amounted to very elaborate justifications for making the changes that clients knew they wanted to make anyway. During our internal blog review one of my brilliant German team members margin noted: “Every couple of years a new organizational strategy and structure is hyped into heaven. In late 1999, I attended my previous employer’s pan-European staff meeting in Paris. I listened to a lecture about the new titans of the dot-com age by another wizened partner. He touted Enron as the blueprint for an ‘entrepreneurial organization with flat hierarchies that foster drive and innovation’. Enron filed for bankruptcy two years later. There are things that won’t change and that are indispensable at the core - accountability and integrity.”

You can pay a lot for these justifications. One of my clients described the results of a recent organizational strategy as resembling a fall migration, “You see David, we are all McKinsey birds perched on branches. They clap their hands and we fly up and land on a different branch. Same birds, different branches.” Now, those were very expensive justifications. My favorite of all time was at another client that had to right-size. They hired the big guns and came up with a restructuring plan. Everybody in the company, who was not on the friends list, had to re-apply for the more limited number of jobs that were on the new grid. It was nothing personal; it was all business. And, worth every penny for those elaborate justifications.

I observe about five organizational re-alignments each year – so, I’ve seen about 125 of them. Expensive reorganizations tend to follow Darwin's law of survival. Basically, the most successful organizational structure eventually wins out. So while all these radical restructurings start out very unique and novel, over time small changes start to chip away at the consultant's vision of what you should look like. You end up with the most efficient structure for your organization given (a) the business you are in, (b) the culture your company has, and (c) the vision and comfort level of the people who actually run the company. Typically, five years down the road you're close to where you started and all signs of the big bad consultant's organization plan are only contained within the fossilized records of org charts of business past.

The most brilliant reorganizations have everything to do with leaders, and little to do with classical organizational strategy. Every time I hear about reshuffling, I think of Volvo’s Mitch Duncan – now retired. Mitch was brilliant in his leadership role at Volvo Cars of North America (VCNA). He was an extrovert and inordinately self confident, yet without any arrogance. Before anybody else thought to do this, Mitch organized Volvo’s service-parts entity as a separate strategic business unit – it was called Volvo Parts. It had a board of directors to give Mitch advice and hold him accountable. Mitch reorganized on a near-annual basis, typically driven by Volvo Parts’ annual planning cycle. Planning was taken very seriously there and was an enterprise activity; not compartmentalized. Initiatives were refreshed each year, people were responsible for different outcomes and outputs – in short, corporate life was very kinetic. Mitch had no boundaries. Yearly, he would reorganize around his initiatives and his people (not his strategies, because they were longer lasting). Mitch felt that his staff had different strengths that would make them, and Volvo Parts’ initiatives, more effective. This is re-organizing at its best- rather than being an exercise of box and arrow drawing, this was about maintaining an organization that could readily shift focus to meet the challenges of the day. After 25 years of knowing most of the Volvo companies, I have a lot of respect for their people, their incredible innovation, their cost effectiveness and most importantly their ability to do what they plan to do. Currently VCNA’s IT group is run by their old parts planning manager, who was recruited out of VW and trained by Mitch Duncan. He’s as good as it gets. So, structure really did not follow strategy there. Structure followed tactics (how to achieve the strategy), and people that would get them there. Reflecting on this versus the 125 or so realignments that I have observed, well, it seems to make a whole lot of sense.

The second case of brilliance I have seen is with Alan Mulally at Ford. Ford’s board brings in a guy from Boeing to run the company and he beats the pants off his counterparts. So, my take-away here is that managers need to know how to manage, and the rest of the stuff can be learned on the job. This does not mean that a good manager necessarily needs to be stupid about the industry. Rather, it simply means that a good manager does not necessarily need to know anything about cars, trucks, bulldozers, motorcycles, or tractors.

After 25 years of watching, here are my 10 laws of organizational strategy. Print these out and you can save millions, or stop reading now, become a consultant, and make millions - Double, double toil and trouble, fire burn, and cauldron bubble.

  1. First Non-Law. Before thinking about organization and structure you need a business strategy – do this in a manner that feels comfortable to you and your company culture. Strategy is what you want to do. After strategy you need actions – how you are going to do it. Remember that a strategy is a vision – a clear direction on where we need to be. However, you should never organize around a vision – it's much too cerebral for most people. It's extremely difficult to make that translation from vision to action. Take it one step down to an objective "what do you want me to?" level that you can organize around. A good manager with a clear directive will figure out "how to do it". If the vision is “compete through rapid product innovation” you can achieve that vision through a myriad of organizational structures – the organization structure is not essential – the only thing that is essential is “hire smart people and effectively allow them to innovate.” Give your managers that clear vision and let them figure out how to do it. There's about 100 ways to achieve a vision, but only a few good ways to achieve an objective.
  2. The Second First Law. Organizational structure follows tactics and people skills; strategy is what we want to do with a myriad of efforts. Each effort is done by people with different skills, strengths, and weaknesses. Think of it as warfare, where each battle requires a different alignment of resources.
  3. Law of Oz. If you think an expensive Harvard Wizard MBA with 2 years of consulting experience directed by a Wizard partner with ADD can pull levers, blow smoke, and develop a brilliant and sustainable organizational strategy for you, then you are dangerous around cars, trucks, tractors, and cycles. You should work for Disney. If you think that one of your peers or bosses thinks like the Wizard, well, first give her/him a knowing wink. If they wink back, then it’s OK – they still are dangerous, but are masterful at politics. No wink back? Then they are probably an alien and you should be careful when they ask you to go out to supper.
  4. Do-it-Lots Law. Reorganize frequently to refresh people, thinking, and tactics. Best case is to reorganize after key initiatives are off of life support (or DOA) – so this means shuffling in sections. When you do this frequently, people come to expect change and adapt to it more easily. They also learn the need for annual accountability – getting things done now. This is good. Letting people stay at the same task year after year also creates organizational inbreeding and defensiveness – people never get the challenge of trying something they might not know anything about. Rotation of responsibility shakes up the organization (fresh set of eyes on an old problem) and shakes up the person (old set of eyes on a new problem.)
  5. Span Law. Manager span of control of 1:10 (one manager to 10 people) is a useful benchmark. A good manager can manage at least up to 10 people; narrower spans of control reflect: (a) managers doing and not managing, (b) inefficient mangers, or (c) empire building, or (d) simple lack of backbone in someone’s inability to say “no” to a promotion. Realistically, spans can be greater or narrower. However, it is useful for managers of non-10 spans to have to formally defend their part of the pyramid and justify deviating from the “10” benchmark.
  6. The Mulally Law says that management skill and experience trumps industry knowledge and tenure. So, you do not need to head up an IT group with a long-time IT person. Marketing groups can be run by non-Marketing people; Logistics groups can be run by manufacturing folks. And, a Boeing guy can run a car company.
  7. Mitch’s Law. Go out and benchmark what other similar organizations do and with how many heads. You will find that: (a) you are doing some unimportant things that others are not doing at all, (b) you are doing some things with more resources and less effectiveness than others, (c) you are doing other things with less resources and less effectiveness, and (d) you are doing some things with fewer or more resources at normative or better performance.
  8. Redeployment Law. Before you give up resources from Law #4, redeploy them to improve your initiative success. Baseball Law Corollary. If someone doesn’t get good results in their current job, they should be traded to another team or job. Manny Ramirez, Sox slime-ball and now Manny-wood drug star proves how amazing some traded players are. (Though, he is a poor example of the desired outcome here – irresistible, but poor) New jobs, new teams, wake up hidden talent. But at the same time, don't allow yourself to mistake unwillingness to change for healthy skepticism. The healthy skeptics (believers) will engage in organizational change by looking for better solutions. They are the people to re-deploy . But there are those who are simply unwilling to buy into the strategic vision, and will spend their time resisting change and influencing others to reject it. Tolerating this behavior will poison results.
  9. Bored Law. Bored of your box-checkers and same-old been-there-dun-that’s? (BTW, every time I hear this I cringe.) Follow Mitch Duncan’s lead and create a Board of Directors for your department or division that serves for ideation and periodic external accountability. Don’t think internal politics here – think about an external view that will give you cheap excuses to change.
  10. Bronx Law. “Don’t say nuthin, fegit it!” This is all about, yes, communicating what you are doing and, no, they won’t forget any lies told in the process. Non-communication is not an option. Your organization will think you are inept if you sneak it by. Lies and ambiguity are brothers in gutting morale. I swear that life in the Bronx is a mimic of life in Tokyo, where yes can be no, and few non-natives can understand the language.
  11. Business-As-Unusual Law. Managing, even improving, “business as usual”, as hard as it is, is the easy part for an organization, but not a reason to reorganize. But only few organizations have the skills or the people to manage the exception to “business as usual” (even though some organizations may have been designed specifically for that purpose – take FEMA and Katrina …). Train people to be problem solvers and troubleshooters, especially those who you see as future leaders – solving problems will be their “business as usual”. Teach frameworks and concepts to enable “outside-the-box” thinking rather than process – blindly following “problem-solving” procedures in an unpredictable world will end in disaster.

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