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Brave the structure!

Structure is the most critical tool in steering an enterprise. A purposeful structure does not alone guarantee the excellent performance of a company, but a badly designed or inadequately put-together structure can surely dilute it.

From time to time the need to assess and renew structure and organization arises. This is usually onset by a change in the company’s strategy or an acknowledged need to re-direct resources in an effort to improve commercial or operative performance.

Need for clarification may also arise after incremental changes that have accumulated over time. Seeking growth from new adjacent offering areas, customer segments and geographies tend to increase organizational complexity leading to ambiguity that hinders organizational performance.

DRIVING STRATEGY WITH STRUCTURE

Structure is crucial in implementing strategy. At its best it reflects strategy so distinctly, that even an outsider can discern the central strategic tenets from the company’s structure.

Sometimes it is evident in how business areas show up within a structure. A classic example is engineering and capital goods companies, which have commenced to grow their services business beyond their own installed base. To enhance this, services have often been structured into its own business area, with its own freedom and management focus, secure from being eclipsed by the established business.

Structure can also emphasize strategic functions. A typical example is found from companies formed from semi-autonomous entities handling all activities in a certain geographical market. They have set out to obtain more muscle in the development of their offering and seek benefits of scale in their supply chain by centralizing these operations and leaving only responsibility of the sales and marketing functions within the country organizations.

THE “BODY COMPOSITION” OF AN ORGANIZATION

It’s been said that strategy is an investment. Originally, this meant capital expenditure, e.g. building up new factories, but applies to allocation of other resources, such as people and talent, as well.  We can then assume, that companies allocate somewhat the same level of resources to different businesses and functions year after year. This organizational inertia in budgeting undermines strategic intent and hinders capitalization on business opportunities as the resources and their allocation do neither effect current nor future needs of the company. This is particularly harmful in industries where the operating environment is in a constant state to fluctuation, making it next to impossible for the organization to keep pace.

The body composition analysis of a company will often show, that “body mass has stealthily sunk from the shoulders to the belly, muscles are missing where they are most needed and substantial fat has appeared”. Before embarking on a rejuvenation process, it is important to define where more resources or capabilities are needed, where cuts can be made and what kind of agility is required from the organization in the future.

CHALLENGES AND TOOLS FOR SUCCESS

Even the most perfect structure won’t function if implementation has been realized only on paper and the organization doesn’t operate accordingly. We have, through the years, run into this type of challenges within organization restructuring.

Sometimes the restructuring is limited to the upper structure. Functions are realigned below the managing director, and existing units are rearranged fittingly. The view from the top may appear radically different, but at the middle and lower tiers of the organization nothing changes, and the reorganization never achieves its goals. In the worst-case scenario, this failure is followed by another top-level organizational restructuring, where even management is forcibly jumbled, but once again, operations continue unaffected.

Letting go of old structures and status is often difficult. This is especially evident when companies move from independent local organizations to a more centralized function-based form. The country managing director, formerly in charge of all operations, assumes responsibility within the market area, and even the former management team is dispersed according to their new functions. Along with the restructuring, the big boss of a small unit changes into a smaller director of something much bigger.

Also, the collective readiness of the personnel for the new structure and operating model may prove insufficient. An individual working in a certain way within a familiar structure does not always adjust to the new organization painlessly. Moving from a line organization into a matrix structure can prove particularly demanding, as reporting dimensions and complexity increase, and the staff have no experience of operating in this type of an environment.

The challenges faced through restructuring are naturally always unique for each company and situation. A proactive tackling of the challenges is critical to a truly successful reorganization process. The biggest barriers and the greatest resistance typically reside deep within impressions and attitudes, where they are hard to detect by the naked eye or ear, and therefore demand much deeper delving methods.

TRANQUILITY VS. APTITUDE FOR CHANGE

The rejuvenation of structure and organization is always a taxing process on both the management and staff. Moving units and personnel around breaks established processes and chains of command, and it takes time before the company’s “nervous system” has fully recovered and is working without disruption again. If it is a recurring event, the company maintains a constant state of “inflammation”, which inevitably reflects also on its performance.

On the other hand, people seem to adjust to constant change as well. With recurring organizational restructuring, staff learn to adjust without major turmoil and regain efficient performance levels faster. Simultaneously individuals develop generally a better aptitude to face different change situations.

Kai Koskinen

By: Kai Koskinen

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