Organization
structures are essential mechanisms for delivering strategic objectives. They
are like the equipment shell or the chassis in (or on) which the rest of the
hardware and software is integrated to develop a product that meets design
objectives. That structure is an enabler for strategy is well researched and
well validated. Alfred Chandler in his path-breaking work established that structure
followed strategy. Yet, not much research is focused on the enabling and
disabling capabilities of an organization structure, relative to its strategic
objectives. Organization structure is an enabler to “house” qualified and
experienced individuals to meet both strategic and governance requirements. It
is also an enabler to fix accountability and responsibility. Rightly designed,
therefore, it must provide competitive advantage to a firm.
Like
structure, process is a key component of delivering strategic performance. In
several ways, process is like the operating system of a computer. However,
unlike the operating system of a computer, the processes are as varied as firms
are. Even within a firm, processes can vary across businesses, functions, sites
and geographies. Process follows structure because process prescribes how
different parts of a structure “talk” to each other. The more efficient a
process is the more effective a structure would be. In practice, however,
organization structures, like equipment or houses, provide a base for talent
but do not automatically enable complete deployment of talent while processes,
like operating systems, require increasing complexity to achieve even minor
differentiation in delivery. This blog
post proposes that rather than the structure or process it is the level of
structural and process impedance that determines a firm’s efficiency and
effectiveness.
Impedance,
conductance
Impedance is
the total resistance of electric equipment (a wire, for example, at the
simplest level) to the flow of power. The lower the impedance the better would
be the equipment efficiency. Electrical impedance depends on the geometry and
material. A thin copper wire would be more resistant than a thick copper wire
while an iron wire would be more resistant than a copper wire of the same thickness.
The same principle applies to structural impedance too. If an organization
structure is geometrically complex and if the individual parts are resistant to
organization-wide change, structural impedance would be strong. Processes tend
to get established to manage structural impedance. However, processes which are essentially
aimed at information flow also suffer from process impedance. The flow of
information also tends to be like flow of current in the electric wire. The
mindsets of people determine the resistance level to information flow.
Conductance
is the inverse of resistance. The greater the conductance of a material the
lower will be the resistance. Interestingly,
the flow of electrons in a material determines the levels of resistance and conductance.
The principles of impedance are similar to principles of mechanical friction as
well as hydraulics. The information flow, in particular, bears a similarity to
pressure differential in flow of water from source to a destination, the
pressure at later stage being lower than at source. The choice of materials and
the geometry are important in design; so is the importance of additional
accessories to achieve efficiency. For
example, resistors and boosters are added in equipment and pipeline designs to
overcome issues of resistance. The
important point to note is that natural human elements as well as synthetic
material elements display widely varying characteristics. It is necessary to
choose options that meet design objectives.
Design
language
Products, as
we know, have design language. Organization structures and business processes
also have their own design language. While a product’s design language is to
appeal to customers in a differentiated manner, an organization’s design
language is aimed at promoting internal efficiencies. The deployment of the
right geometry in an organization design can lower the otherwise inevitable structural
and process impedance in an organization. One of the best geometrical patterns
in organization design is Rensis Likert’s Linking Pin Organization (LPO), which
offers an elegant balance between vertical hierarchy and horizontal span, while
ensuring absolute clarity on how chain of command and cross-functional links
could work across an organization. There are several other organization design constructs
and principles but few are as clear as the LPO is.
Clarity in
organization design came to be affected over time as concepts of line and staff
functions began to take root. The emergence of multi-business and multi-site
global organization has led to several organization structures that sought to
impose diversity on line-staff differentiation. Structural complexity has
resulted in further efforts to impose additional structures to manage
complexity. Firms adopting this route tend to be impacted, rather unknowingly,
by the increased structural and process impedance caused by the complex
organizational geometry. The increased fragmentation caused by such structures
also has been inhibiting the ability of firms to develop leadership pipeline. The
Strategic Business Unit (SBU) concept provides an ideal design solution to
bring the simplicity of LPO structure to highly diversified businesses; the
success of a diversified construction major such as L&T in India to find
homegrown internal leadership succession is related to a combination of SBU and
LPO structures.
Structural
planning
While it is
widely accepted that structure follows strategy in a generic sense, not many
give attention to the need to let organization structure to follow business
structure in a specific context. Strategic planning happens, in most
organizations, every year to look at a five year perspective on a rolling
basis. Many emerging businesses become mature businesses and mature businesses become
declining businesses while green shoots of new businesses emerge in the
strategic plan horizon. Mostly however, firms try to make do with only minor
adjustments to organization structures that could hopefully accommodate
strategic changes as much as possible rather than proactively reinvent organizational
structures along with strategic shifts. The positive way is to make
organization design an integral and concomitant part of the annual strategic
planning process and make development of a new organization structure mandatory
before any strategic investments are planned.
Structural
planning should focus on creating independent but accountable organization
structures for new strategies. Typically, today’s organizations should be
created for tomorrow’s results. The costs of not being organizationally
proactive could be immense. Tata Motors’ inability to make a sustainable
growth path in the car market is attributed to its unwillingness to create an
end to end discrete sales, marketing and dealership organization for passenger
cars, distinct from that of its traditional commercial vehicles. Leading hospitality chains, from Hyatt and
Hilton to Taj and ITC, are able to achieve complete market coverage by
developing discrete hotel infrastructures and marketing organizations
appropriate to each segment. These business strategy driven organization
structures reduce structural and process impedance by design.
Design
behaviors
Managements,
somewhat strangely, tend to prefer complexity rather than simplicity. Some
managers find creation of new organization structures ahead of business
development to be an avoidable expense. Some managers find it difficult to let
go of career opportunities that could come along with additional
responsibilities when an existing structure is burdened with additional scope.
Some managers, of course, fail to appreciate the nexus between strategy and
structure. The combined effect of these embedded behaviors is the creation of
monolith firms that become unwieldy and complex. Enlightened managements,
however, recognize that the costs of discrete organization structures are more
than compensated by increased business efficiencies within each structure. The
success of conglomerate business model is based on such realization.
The fear
that individualization of organizational units promotes non-standardization or
non-harmonization of enterprise processes is ill-founded. A linking pin
organization that connects the leaders of individual organization structures
into a conglomerate leadership group addresses most such concerns. Proactive
organization design approach requires the choice of right heads for right structures
and trust in their ability to lead accountably at SBU level and integrate responsibly
at conglomerate level. Envisioning an organization of the future needs to be an
integral component of leadership vision for new businesses, whether
mono-product standalone businesses or multi-product conglomerate businesses. Understanding
the physics and mechanics of organization structures and the role of structural
and process impedances is a key component of successful organization design and
development.
Posted by Dr
CB Rao on June 28, 2014
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