The Hidden Costs of an Obsolete Structure
Reed Deshler | June 28, 2017
“As long as there is a global marketplace and exploding technological progress, the need for formalized and ongoing organization alignment efforts will continue.” Mastering the Cube, Chapter 8
Like the foundation of a house, the structure of your organization is the cornerstone on which every function is based. Does a solid, well-aligned structure in itself guarantee success in all areas? Absolutely not. But can you achieve your goals without it? Absolutely not.
Many organizations put a tremendous amount of time and effort into designing their structures, only to take on a “set it and forget it” mindset. What they fail to recognize is the array of internal and external forces that can chip away at your structure’s effectiveness, eventually rendering it obsolete. These include:
- Competitive pressures. I challenge anyone to identify an industry in which players are not constantly called upon to rethink how they differentiate themselves. Witness what’s happening in retail right now. E-commerce changed the rules of the game, and once-powerful retailers such as Macy’s and Sears failed to respond. The result: cratering revenues and shuttered stores.
- Mergers, acquisitions, and divestitures. Most organizations are designed without considering the possibility of one of these events occurring in the future. But they can result in a fundamental change to the organization’s value proposition, forcing leaders to realign or face the consequences.
- Expansion into new markets. Moving into a new geographic region or product arena requires new capabilities that your current structure may be ill-equipped to handle.
- Expansion into new channels. New technologies offer novel ways to interact with customers and to personalize their experiences. Integrating these new approaches can call for a re-evaluation of existing organizational structures.
- Technology change. If your technology is outdated, chances are your work processes are as well, inhibiting your ability to develop innovative ways of producing, delivering, and selling your products or services.
If an organizational structure has become obsolete — or if it was never quite right to begin with — the impact can go far beyond the occasional annoyance or missed opportunity. A flawed structure can give rise to serious and costly problems that directly impact your bottom line, including:
- Increased personnel costs. Many leaders address faults in their formal structure by hiring more people to fill the gaps.
- Rise of shadow organizations. Groups may circumvent the formal structure altogether and build their own dedicated organizations to get things done. For example, if a particular group is not receiving the support it needs from the IT department, it may hire its own IT people (or bring in an outside vendor) to provide the needed services.
- Slow or unclear decision making. If a structure does not support the appropriate assignment of decision-making authority, the organization may see decisions being made at the wrong level or a disproportionate number of decisions being escalated. The result? Straightforward, routine decisions take longer than they should, and workflows grind to a halt.
- A cumbersome customer experience. If you’ve ever placed a support call to a provider and had to tell the same story to five different representatives, you’ve experienced first-hand what a faulty structure can do to the customer experience. How long will customers continue to put up with the frustration?
- High employee turnover. It’s no fun working at a poorly structured organization. It’s difficult to get things done, difficult to get resources, nearly impossible to get decisions made in a timely manner. If your organization is misaligned, it won’t be long before employees — starting with your best and brightest — begin looking elsewhere for opportunities.
The best way for leaders to prevent their structures from becoming obsolete is to embed a review of organizational alignment into their strategic planning processes. In Mastering the Cube, we discuss that enterprises should be in a constant state of change, so that misalignments can be immediately identified and addressed before they can create serious problems.
What do these reviews look like? A good place to start is with the internal and external forces we discussed above. Take a close look at competitive pressures, recent mergers or acquisitions, expansions into new markets or new channels, and advances in technology, and begin a dialogue among your leaders about what structural changes are needed to adapt. If adjustments are needed, undertake a systematic organization design review. It may seem like a daunting task, but it’s an important investment in your future that will yield outstanding returns.