On my way to Paris I stopped at the bookstore inside the San Francisco International Airport and bought several magazines including the June 2010 issue of the Harvard Business Review.
What caught my eye was the cover page lead MANAGING CHANGE - How to Do It, When to Do It. Ther authors Marcia Blenko, Michael Mankins, and Paul Rogers are members of the Global Organization Practice at the Bain & Company, a well known and reputable consultancy.
I approached the article with much skepticism. After all, what else can be said about change? What captured my interest is the conclusion of the article: "Ultimately, a company's value is just the sum of the decisions it makes and executes." Hmm! Never thought about it that way.
The article goes on to review important lessons learned from reorganizations in 57 companies between 2000 and 2006. After much fanfare, most, if not all, such changes fall flat. The authors believe that these failure are rooted in a profound misunderstanding about the link between structure and performance. They conclude that performance is not determined solely by the nature, scale, and disposition of resources, however important that may be. A company's structure will produce better results if and only if it improves the organization's ability to make and execute key decisions better and faster than competitors.
The article advances a six-step approach to creating a decision-driven reorganization:
1. Identify your organization's key decisions.
2. Determine where in the organization those decisions should be made.
3. Organize the macrostructure around sources of value.
4. Figure out what level of authority decison makers need.
5. Align other elements of the organizational system, such as incentives, information flow, and processes, with those related to decision making.
6. Help managers develop the skills to make and execute decisions quickly and well.
Decision effectiveness and financial results correletated at the 95% confidence level or higher for every country, industry, and company size. The study pointed out that it is the quality of decision-making rather than the structure that should be the primary focus of the reorganization. No strong correlation was found between structure and performance.
To really appreciate the lessons learned from this article, it is important to read it in its entirety.
As I was reading the article my mind began to remind me of a classical failure that I recently observed in a multi-national company. The decision making process was totally misaligned with the intent of the structural transformation the organization embarked on.
For example, a senior officer at the corporate level was given the authority to approve major decisions regarding strategies and direction while the operating executives were made responsible for the success of the strategies they did not create, did not own, or fully understood.
The incentive system was not fully aligned with the change goals. As implementers realized that the likelihood to achieve their targets were beyond their reach, motivation began to decline and job pressure skyrocket.
The notion that the strategy had worked elsewhere (although many disagreed with this claim) and therefore should work everywhere was not only false but foolhardy. It ignored the important notion that no two organizations are alike and that there is no one best way. Size, history, national culture, market dynamics, and skill set matter a lot.
A proper decision audit would have revealed that the course of action was not just what important activities needed centralization to achieve economies of scale, but how these decisions were reached and by whom. Sad, but the entire intervention was a monumental fiasco, albeit well intentioned. The intervention was successful but the patient died.
How about you? Have you seen successful reorganizations? How would you say they might have differed from the unsuccessful ones? Lessons learned? For me, beware of of the one best way... it worked elsewhere so it should work here ... trust me, it will work.
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