Does Your Business Have the Right Organizational Structure?

structureAs businesses grow and add people, it is not long before signs of an organizational structure start to appear.   Structure often grows because of commonality of function (eg. sales, or production).  Sometimes it happens because of technology (computing, manufacturing).  Other times it occurs because of geography (two different retail locations under separate store leadership).  Whatever the reason, a growing organization inevitably ends up being organized and operated as separate sub-parts, with differing leaders, goals and performance standards.  Sometimes these are fully integrated and connected as part of the whole.  Other times they evolve into disconnected silos, trying unsuccessfully to maximize performance under one corporate structure.

Let’s say I have a request for assistance with a structural review of a 28-person organization.  The usual symptoms might be there: an overworked and over-whelmed senior leader; rapid changes in demands and expectations of the business; budget pressures resulting from declining resources;  and higher than normal absenteeism for stress-related illnesses.  The 28-person organization may all report to the one senior leader, with no intervening layer of leadership.  And this senior leader may now be required to spend more time managing the external environment of the business and hence has less time available for internal operational matters.

Most business leaders do not pay enough attention to structure until it is too late.  They remain too comfortable with a structure that served them so well in the past, never stopping to consider whether it is still functional.  A useful analogy here is the 75 year-old couple still living in the original 4-bedroom 2-storey family home, with freezer and laundry facilities in the basement and the only bathroom on the second floor.  It once served a very useful purpose and enabled the family needs to be met.  But as their family needs and health realities change, they find themselves living in a house designed for a very different purpose – and one not at all suited for their needs for today – let alone for the next 10 years. One fall resulting in a broken hip would require convalescence in another location – or an institution.

Organizational structure must be driven by the needs of the business today and tomorrow.  What products will the business be focused on?   What customer demographic are products being aimed at? Will the organization be larger or smaller five years from now?  What impact does the current structure have on its ability to succeed?  Is this the best structure for tomorrow – or simply one that the owner is comfortable with because it has served well in days gone by?

One scenario is a CEO who is trying to manage an organization with a manufacturing facility that is literally split into two parts.  The structure may have come about as a result of a senior leader leaving, and as a cost-saving and developmental move, two operational leaders from opposite sides of the facility have been elevated to report to the General Manager.  Today, years later, these two work units are functioning as separate factories within the same plant.  Frustration and competitiveness surface as new products are introduced and cross-unit teams are required for efficiency.  The structural silo mentality prevents the cross functional collaboration and synergies employees require for better outcomes for customers.   And there may be a major reluctance to go back and honestly assess whether their current structure is enabling or inhibiting their future.  And besides – the two unit managers are happy with the status quo; after all they were the ones who proposed the split structure when the previous senior leader departed.

Organizational structure should never be driven by the needs or wishes of employees or incumbents.  Structure needs to be determined by the needs of the business rather than the interests of individual players in the business.  Getting this wrong is a major reason that many organizational structures are inhibitors rather than enablers of success.

Organizational structure needs to be flexible enough to respond to the needs of the business looking forward rather than protecting the status quo.  Structural review should form part of a regular strategic planning process – making sure that structure is current and enabling, rather than hindering future success.

For the initial client scenario above, we will start our organizational review with strategy and planned futures, current structures, and operational information on what is working and what is hindering success.  We will interview leaders, Board members, and selected staff.  We will search out comparable organizations to get a better view of best practices related to structure.  And then we will sit down with the client and outline options for moving ahead.  Once a future state is agreed to, a transition plan will be established to address any impacts on existing employees. We will then develop an implementation plan and schedule.  The presence of an external, third party set of eyes and ears to review the current status and options is critical to enable the business owner to recognize and move beyond biases and history.

I encourage you to take a critical look at the structure of your current business and to ask whether it meets the needs of the next five years.  You might be surprised at your answers.  Our next Delfi post will deal with managing operational silos within organizations.