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The increasing importance of organizational structure

Importance of organizational structure

Are we about to embark on a sea change around organizational structure?

Deloitte just did a study of 7,000+ companies in 130+ countries (it’s called Deloitte Human Capital Trends 2016) and above you can see what the leadership of various companies was worried about. There’s the normal caveat here: a lot of times, senior leaders in a company are concerned about money, revenue, growth, and fiscal metrics — to the exclusion of virtually everything else. But… that’s not a cool thing to say on a business trends/needs survey research concept, so they say stuff like “Engagement!” Then, moments after talking with Deloitte, they run to their 2:30 and breathlessly analyze financial metrics. This does happen. Same deal: dating surveys now reveal that ‘funny is the new sexy,’  but very ugly funny men and women probably still don’t go on a lot of dates. People talk from both sides of their mouth.

But still: look at the top four here.

  • Organizational structure
  • Leadership gaps
  • Culture
  • Engagement

I don’t see any financial metrics mentioned in there!

Why are we starting to care about organizational structure?

Josh Bersin, who spear-heads a lot of this type of research, kind of breaks down what the core problem is for most organizations here:

The problem we face, however, is how we coordinate and align these teams, how we get them to share information and work together, and how we move people and reward people in a company that no longer promotes “upward mobility” and “power by position” in leadership.

I can simplify this even more. Most companies operate from one specific goal, even if they claim other goals:

  • Make money

OK. So let’s say that’s your true goal and you lip-service purpose, mission, vision, talent strategy, engagement, culture, etc. Let’s say that’s the type of organizational structure you have. I get it, and I’ve worked in those places, and oftentimes they are very financially successful — and since our definitions of success with regards to business usually center around money, this is perfectly logical.

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But then a funny thing happened on the way to the organizational structure forum.

Business models changed. (Insert someone shrieking “Disruption!” and diving through a plate-glass window here.) The sales funnel reinvented itself. (Insert a B2B sales bellowing about how busy he is, then surfing Facebook all day here.) Digital became a ‘priority’ for many orgs, even if Boomers barely understand it and are trying to hold on until they can take their Italian walking tour. Point is: things changed.

As things changed and business supposedly also became more complex, we slowly started to see this shift:

  • Hierarchy still matters in terms of how we organize, but …
  • Hierarchy can’t be the be-all and end-all of how information moves, because …
  • Silo’ed information in a time when companies can easily avoid that will …
  • Essentially destroy your business

Check this out. Let’s say you make widgets, OK? Your organizational structure is old-school: top-down, command-and-control, rank-and-yank, and your senior leadership team is entirely based on execution and expertise. That model worked for years. Even decades.

But now you got this other company coming into the fold selling widgets, right? And they have a nice interface and they understand digital trends and they use a collaborative software tool like Trello or Slack or even Google Drive — so the sales guys know what marketing is doing, marketing knows what Ops is doing, Ops knows what IT and HR are doing, etc. It’s a ‘networked culture.’

Business is really all about information and relationships trading hands. You can yell at me about margins and ROI all day; all a ‘margin’ represents is value from relationships, information, and a product/service.

So in this situation, who’s better equipped to win in 5-10 years?

The organizational structure based on a bunch of guys who think they know it all and nothing moves strategically without them? Hierarchy and formal power all the way?

Or the organizational structure where information is shared, parts work together, and there are bosses — there’s always bosses — but they realize their job is more about guidance and coaching?

Take your pick.

How organizational structure changes: It’s a revenue need

I yelp about this stuff in Twitter chats all the time — mostly people ignore me, but it’s OK.

If you want senior leadership at any for-profit company to care about something, it has to hit two conditions:

  1. It’s measured in some way.
  2. It has ties back to revenue or financial growth.

That’s it.

If you can’t link ’employee engagement’ to ‘revenue,’ you think the CFO gives a flying fuck? He/she doesn’t. He/she has targets to hit, and engaging in a 1-hour dialogue around a fluffy topic like ‘engagement’ is not on the agenda.

If you can’t link ’employee advocacy’ to ‘how will this be measured,’ you think a C-Suiter will give a shit? Not even remotely.

So it all comes back to this:

  • Measurement
  • Money

And this is where organizational structure is starting to now emerge as a priority. See…

  • Obviously it can be measured. You can adjust an organizational structure and see the results in terms of performance.
  • Now, though, it’s tied to money. Young bucks with different organizational structure models are threatening big dogs. The castle is being raided! Nooooooo!

Because it’s tied to measurement and money, now the senior leaders care about organizational structure. That’s what the picture at the top of this post showcases.

So, how do we get a better organizational structure?

I could lead here with stuff like “Care about people more!” or “Practice transparency!” I’ve written blog posts like that before. Thing is, those are fluffy, hard-to-define concepts that don’t mean a ton to people, writ large.

If you want a better organizational structure, well … here’s what I’d consider.

  • Reorganize how the hiring process begins: The way we deal with headcount at most companies actually hurts attempts at innovation. It needs to be more logical; it can’t be based on the loudest or most politically-connected person in the boardroom getting headcount with no rationale.
  • Reorganize how the hiring process unfolds: The idea of HR running point instead of the hiring manager for 2-3 initial cycles is a complete ‘cover your ass’ move by most organizations, couched in “HR knows it better!” No, they don’t. If a hiring manager believes his/her team has a need, then he/she needs to be the one sourcing and vetting people — because he/she would know best what his/her team needs. It’s that simple. You want the hire, do the work. Stop hiding behind HR as you run to your 10:30 on Q2 metrics.
  • Job role and definition: This is everything. Job role is actually essential to a healthy bottom line. Most orgs, once they get past about 30M in sales or so, have a bunch of people wandering around all day that no one has a fucking clue who they are or what they do. “That’s Bill, he slays sales dragons!” Bill could leave at 1pm every day and no one would give a shit. Bill doesn’t need to work there. But Bill probably makes $105,000 a year and tells everyone within earshot how “slammed” he is. How do people like Bill come to exist? Because no one thinks about job roles, teams, what teams need, and how the parts fit together.

If you’re a sports fan, consider this one, OK?

Let’s say you build a team for the NFL. Great QB, nasty defensive line, good corners, etc.

Now, 5 years later, Roger Goodell is like “It’s time to play soccer instead!”

Now your team sucks, because it wasn’t built for that.

So you gotta rebuild it for the new game.

That’s the essence of organizational structure.

Digital disruption, remote workforce, cloud technology, etc … all that changed the game. Organizational structures designed for basketball are now playing cricket. So you need new people, new teams, new ways of organizing things, etc.

That’s why job role and how you hire is absolutely crucial.

That’s why you need to give a shit about your talent strategy.

Because, oooooohhhhhh, if you scroll all the way back up to the graphic at the top of this post, look at what 58 percent of leaders are calling a “very important” business need:

Leadership gaps.

That’s why you need to think for a second about talent and organizational structure and the processes you use to drive those forward — just like you would, will, and do about financial processes and structures and metrics you want to nail there.

It seems like organizational structure is becoming more important, at least via this Deloitte research. Let’s hope it sticks.

Ted Bauer

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