Four elements of deconstructing a company's DNA

Every economic era has a theme. We still remember the so-called "Gambling Age" of the 1960s, when an unprecedented slew of mergers and conglomerations spurred Wall Street's stock market. The 1990s was dubbed the "Internet wave", when the emerging economic boom lifted many companies with modest operating models. The slow recovery of the economy after the bursting of the Internet bubble has sparked new themes recently. Executives believe that strategic mergers, reforms and separations are not enough. "We've made the right strategic decisions, but our organizational structure doesn't match it," they said. "Despite everyone's claim to understand the vision, business units and functions are not working together to achieve their intended purpose."

Welcome to the Age of Execution.

Execution has become the new panacea in the first decade of the 21st century. Larry Bosidy, who successfully led AlliedSignal out of its slump and completed its merger with Honeywell, co-authored a book with Ram Charan: Execution: The Law of Success (Crown Press, 2002 ), has been on the business bestseller list for over a year. Gerstner, the former CEO of IBM, wrote in his collection of essays "Who Said Elephants Can't Dance?" (Harper Business Press, 2002) conveys the same message, in which he argues that IBM's revival is not about prospects, writing: "IBM reform is all about execution. "

The board has been personally involved in the execution process as it grows impatient with the old-fashioned CEOs. The number of CEOs fired for poor performance at large companies reached a new high in 2002, a staggering 70 percent increase from 2001, accounting for 39 percent of all fired CEOs, according to Booz & Company's annual study of CEO hiring and removal trends. %.

But is execution all about firing the CEO and bringing in a successful business leader? totally not! For a company driven by execution, the central question to answer this question is: How does the company design its organization to execute on a given strategy and successfully adapt to changing circumstances?

Execution is tied to the nuances of an organization, and it goes deep into what each company's so-called "rules of the game" encompass, including management processes, partnerships, codes of conduct, motivation, and company beliefs. Although we often think of each company as a separate entity, this is not the case. They are a collection of individuals who serve their own interests. Good and solid joint execution can only happen when the two companies are aligned and share all strategic interests and values. The performance achieved in this case is the sum of the tens of thousands of actions and decisions made every day by thousands of employees at different levels in a large company.

Because the behavior of individuals over time determines the success of an organization, the first step in solving the problem of a poorly functioning company is to understand how the characteristics of the organization affect the behavior of an individual employee and his or her ) performance. We like to use DNA as a metaphor for the unique characteristics of a company, just as a DNA molecule with a double helix structure consists of a pair of polynucleotide strands coiled around each other (the sequence of these four nucleotides determines the uniqueness of each species) , we describe the DNA of an actual organization as: It consists of four basic elements that, through an infinite number of combinations, form the uniqueness of the organization. These basic elements are:

What is the level of structure organization? How are the lines and boxes connected within an org chart? How many levels does an organization consist of? How many direct reports are there for each tier?

Who decides what? How many people were involved in the decision process? How does one lose or gain authority to make decisions?

Motivation What goals, motivations and career choices does each employee have? What kind of performance will employees be rewarded for? How to reward employees materially and spiritually? How to encourage employees? Is it direct or implied? Encourage them to do what?

What is the standard by which information is used to measure employee performance? How to adjust the action? How to train employees? How are expectations and processes communicated? Who knows what? Who needs to know what? How does the information pass from the owner to the person who needs it?

Of course any metaphor can be generalized very deeply. Although the basic metaphor of the company and human DNA is often brought up in general discussions about institutional culture and behavior, we believe that this metaphor provides senior executives with a practical framework for analyzing and diagnosing the company's problems, identify potential capabilities, and change company behavior. By examining every aspect of a company's architecture, resources, and partnerships through this framework, managers can more easily see what's working and what's not digging deep into a complex organization to understand why they're the way they are and decide how to change them. (See the article attached at the end of this article: "Focus: Analyzing the DNA of Quest Diagnostics")

Structure

In theory, companies make structural choices to support strategy (eg, organizing around consumer, product or geographic business unit decision). In practice, however, a company's organizational structure and strategic intent often do not match. This mismatch often manifests itself when a powerful and efficient executive within a company adds redundancy to the org chart on a business unit's strategic plan.

A common structural problem that hinders strategy execution is the presence of too much management (yellow layers in the diagram on the right) with too many people at each level with too few direct reports (width Very narrow). Described graphically, this structure resembles an hourglass (see Figure 1). The narrow width of the middle tier is often caused by ambiguity in decision rights and confusion in forward dynamics. Such a structure generally causes trouble for the company.

There are many reasons why a person in one management position would rightfully require more or less direct reporting than another. Managers in the complex job of creating and maintaining a diversity of information connections in individual units cannot handle the same amount of direct reporting as managers with simple information aggregation tasks. But the number of direct reports is also often inexplicably smaller.

Now let's analyze the control of direct reporting for three senior manager positions at a consumer products company we worked for. As shown in Figure 2, the category/line manager has 5 direct reports, while the senior managers of the two best companies have 7 and 10 direct reports respectively; the VP of sales has 6 direct reports, The other two companies had 8 and 10, respectively; manufacturing managers had only 7 direct reports, compared with 11 or more at other companies. We compared more than 100 companies, and the data shows that this company is well behind the average of its peers.

In our experience, the fact that this figure is well behind the average is strong evidence that a company has fewer direct reports than it should have, a situation that often results in too many layers within the structure. These are evidence as we try to understand what the top executives of the consumer goods company do on the job. They spend about a third of their time making plans, making sure the company's goals are met, and dealing with objections and high-investment/high-stakes decisions, which are their responsibilities. But they spend a disproportionate amount of their time (about 40%) reporting performance to their superiors and using their direct reports to jointly make tactical and executive decisions. In other words, they spend too much of their time putting an afterthought on the work of their subordinates and preparing reports for their superiors so they can be an afterthought, they should spend more time preparing an action plan so that they can achieve Corporate strategy and execution goals.

This structure of the consumer goods company prevents the organization from reaching its potential, and in these dysfunctions we find that because there is no clear standard to empower the grassroots to make Purchasing or travel is done by the top of the organization. Managers and supervisors tend to prevent their employees from finding and solving problems in their day-to-day work. Managers change jobs frequently and do not require sufficient work experience to gain senior positions. Not only do they need internal oversight, but they must point out what they need to know. Companies quickly promote their best and most capable employees as if they were afraid they would jump ship, adding unnecessary layers to the structure and creating too much work at the grassroots level. The workday is full of large interdepartmental meetings, and the basic principle should be: have all meetings solve problems in one office.

The cost of all these actions is enormous. In Figure 1, these 6 tiers are all high-paying managers. Their expenses, combined with the actual expenses caused by these actions, make the company's general and administrative expenses 20% higher than our estimated average for similar companies. Because every layer was involved in almost all decisions, the company was slow to respond to the market and lost opportunities to compete with responsive companies in many areas.

The most obvious structural change is to reduce the number of layers and increase the width, ie increasing the number of direct reports for each manager. We recommended a new structure that reduced manager positions by 10% across all 6 tiers, resulting in the elimination of approximately 2,300 manager positions by cutting and redeploying managers and support staff, saving the company $250 million expenditure.

It's important to point out, though, that simply reducing the number of layers and increasing the width won't do much in the long run if the base layer still behaves the way it does. One way companies can address this is by setting clear norms (such as what brand of computer to buy or which airline to fly) so that senior managers don't have to personally review every report and make comments. As long as there is a monthly report, they can understand objections to the norm. There is another solution, which is to reformulate the promotion plan, slow down the manager's promotion pace and encourage more smoothing. Promotion is not only a means of reward, but also used to increase the manager's work experience. A lengthy reporting process satisfies information preferences at each level and a great deal of detail. In their place will be a report on delaying and leading an urgent code of business conduct, a tightly managed target setting by an organisation, and monitoring of differences of opinion. In order to further address the negative effects of reducing the number of layers, the company must also conduct more management training and better communicate with managers about changes in promotion principles. With structural and management changes, the time it takes for a new product to come to market decreases month by month, allowing the company to regain the dominant position it once had.

Decision rights

Decision rights designate who has the authority to make what decisions. Clear decision-making power can bring life to the organization and clearly indicate where the responsibility lies.

Clear decision-making leads to wider widths and fewer layers, which means less spending and faster decision-making; unclear decision-making is worse than wasting time, it's substandard performance Not even the culprit of performance. An employee at a financial services firm noted that the problem is more specific at the top of the company, saying, "Here, responsibilities are intentionally confused so that everyone has an excuse not to participate. "

In one industrial company, we again found that senior executives spent too much time reviewing small projects. This shows that the company has not re-imposed restrictions on managers' approval rights in more than 10 years. We recommend adjusting the delegation process so that lower-level managers in the organization have the final say on more projects. The amount of capital expenditure required to authorize the CEO rose from $5 million to $15 million. Our goal is to save senior executives time so they can focus on long-term issues related to market growth and potential benefits. Historical data shows that if the value of projects requiring CEO authorization rises to $15 million, the number of large cross-functional projects will decrease by 49%. If all large projects were still decided by the CEO, the total value of projects approved at the highest level would only be reduced by 13%.

There are many reasons for confusion about decision-making power, but not all of them are intentional. After a large industrial company completes a leveraged inventory purchase, the management organization of a business unit in the company is upgraded to the corporate management organization of the new company, and the operating decisions of all business units in the company are reviewed. This change in role requires that each level of the governing body be responsible for making more significant decisions, which is unnatural for executives accustomed to being personally involved in decisions about how the unit operates. CEOs and COOs still prefer to be deeply involved in making fundamental decisions about product design and resource allocation, rather than having their average manager do it. Yet they ignore other noteworthy aspects, such as ad hoc strategic plans, long-term business decisions, and the company's financial health.

The solution to this problem is to create a mechanism for company officials to delegate decisions to general managers of business units. An executive committee is established to review business unit decisions, while general managers are responsible for marketing integration, product design and manufacturing. This structure and mechanism enables efficient authorization.

Changing a company's decision-making structure doesn't need to be as complicated as leveraging inventory, but it's always a natural tendency to do it when faced with change. Executives are always promoted because they have more responsibilities, take on unnecessary tasks, and take back power from their subordinates. The rank-and-file managers of the business units share the pressure of urgent tasks for the CEO. Immediate and concrete decisions have become fewer and fewer, while major decisions on the long-term direction have become more vague and fragile.

Generally, the process of distributing decision-making power is caused by changes in executive power. When this happens, decisions are often changed overnight. Either different agencies make different decisions on the same issue, or they repeatedly review decisions and it becomes an endless loop.

Yet the systematic and rational distribution of decision-making power is not impossible. We have helped an international industrial company build an organization that intertwines functions, products and geographies. The organization is underpinned by a clear set of organizational and decision-making principles, including: Responsibilities do not represent one-size-fits-all authority; Different business units must have joint goals and measures of performance; report to the senior manager.

Over several months, we assisted the company in applying these and several others to more than 300 major decisions. Because we not only changed the structure but also made a clear effort to enable the company to execute the new strategy faster and more effectively. The entire renovation took two years (one year less than originally estimated). In the end, the company returned to earnings, reduced net debt to expected levels, and met other urgent financial targets a year ahead of schedule.

To turn those companies' decisions from confusing to clear, there needs to be a governing body whose main purpose is to set norms for the most common business situations and for every position. As a result, the company created a system that dictates who decides what under what circumstances.

Decision rights within the team must also be clear. In a consumer products company, we found that they frequently held executive meetings to resolve conflicts between functional units. In fact, the executive department, the finance department and the marketing department are all independent and competent in the work of analyzing new competitors, new products and new business opportunities, but in their work they ignore each other, and the executive department has made a perfect The factory plan did not refer to the Finance Department's comments on costs. In the marathon meeting, the managers of each functional unit came up with independent analysis reports, and then they fought hard to reach a consensus, because each of them was full of opinions at that time.

In order to solve this problem, there must be a senior executive responsible for managing a team of cross-functional units so that there is good communication between the functional units. The advantage of this is that only individual senior executives need to make day-to-day decisions, and the company can reduce its workforce by more than 30 percent.

Motivation

The third fundamental element in a company's DNA structure is motivation. Employees usually don't go to waste on purpose, they don't try to undermine the company's strategy, they just respond rationally to what they see, understand, and be given. If the organization's motivations and information processes make it difficult for employees to understand, then lecturing employees about keeping up with prospects and strategies is a waste of words.

Organizational messaging often overwhelms employees. Let's examine what happens when the evaluation system inflates employee performance. At a consumer products company we worked with, employees were rated on a 10 scale from 1 to 10. 80% of employees are rated a 9 or 10, and everyone is happy, but this leads to really good employees losing motivation. The average employee thinks they are doing a good job when they are not. Evaluators avoid the embarrassment of giving bad ratings, and the organization doesn't ask them to be strict. Many unqualified employees stay in the company because the organization says he (or she) is competent, a situation that weakens the company's ability to execute. Because companies are reluctant to use performance ratings to differentiate employees' contributions, companies are also unable to feed back important information to employees, including what execution strategies relate to and where they fall short.

We worked with the new CEO of a technology company a few years ago, who had previously been a business unit manager and spent several years on the executive committee making investment decisions. He felt that the Executive Committee was not strong enough on the new investment requirements. They were like a university society, where each member agreed to the investment requirements of others so that their investment requirements could also be approved by others.