The Importance of Decisions in Organizational Change
“Harvard Business Review: The Decision Driven Organization”
Marcia W. Blenko, Michael C. Mankins and Paul Rogers (2010)
Organizational restructuring
There is a commonality when assuming what drives performance in organizations. These consultants have identified that many CEOs presume that organizational structure is a key predictor in having competitive financial performance. For example, say an organization is trying to innovate and become more creative; CEOs will quickly create and reorganize their organizational structure to channel resources towards innovation. Reorganizations always involve making large structural changes in the company. Bain & Company conducted an analysis of 57 organizations that embarked on restructuring (reorgs) between 2000 and 2006 and found that two-thirds of those companies fell flat and destroyed initial value in the organization.
Why does this happen? Blenko, Mankins, and Rogers (2010) believe that this is solely rooted in a complete misunderstanding of what drives performance. They argue that most CEOs have overlooked the factor of important decision-making processes. An organizational restructuring would only benefit the company if it improves the ability to make and execute key decisions better and faster than its competitors.
The revision of old practices
It is commonplace for organizations to use a SWOT analysis (strengths, weaknesses, opportunities, and threats) before considering an organizational restructure. The reason is to mainly determine if the organization has adequate resources to support change. The authors argue that an organizational structure is not the sole determinant of performance, in some cases, focusing on that during restructuring can even exacerbate the problem rather than solving it. For example, a company that wants to innovate and become more creative might just hire more innovative workers – and subsequently, end up with too many individuals being involved – slowing down the decision-making process as a whole.
Ultimately, a company’s value is the sum of the decisions it makes and can execute. The systems and structures are inept unless leaders and managers can make the essential decisions right, then often not. In 2008, Blenko et al., (2010) explored the correlation between performance and effective decisions against performance and structure. They found with a 95% confidence level (if we repeatedly resample and test the same hypothesis, we will see the same result 95% of the time) that decision effectiveness (check out the original article to see how they measured decision effectiveness) and financial results were correlated. In addition, research even revealed there was no strong relationship between structure and performance (Blenko et al., 2010).
How should organizations tackle restructuring?
A decision audit: Identifying key decisions you need to make and execute, to reduce the disparity between decisions you should be concentrating on and the ones you are currently making.
The consultants give a great example:
“In 2006, Ford was losing more of market share every year since 2000 and was on the verge of collapse. When Alan Mullaly became CEO, rather than focusing on the organization's structure he worried first about decisions. Outlining first, the critical decisions at hand – only then did they build a new organization around those strategic decisions. Fixing the company’s operation and restoring profitability centered on Ford’s critical decisions. A few decisions were to divest noncore brands, reduced production platforms, and reorganize the company by moving from a regional business to a global matrix of functions. These key decisions allowed Mullaly’s team to make the most important decisions (Blenko et al., 2010).”
In most instances, organizations don’t need to reorganize – as leaders place too much emphasis on consensus with the opportunity cost of decisive action. However, if your organization does need a restructure, these are the steps recommended by consultants. We have visualized the recommendations on to an infographic; for more information check out the original article in the references.
Once a department is identified, then proceed to a restructure around those values depicted by your analyses. Another issue to worry about is exactly how much authority, decision-makers need; it is common to see that subordinates who gave best solutions had to get through too many stages of approval from superiors which delayed execution. Finally, developing managers the adequate skills to make decisions quickly – whether that be through a simulated training session or developing specific skills to be better decision-makers over time.
References
Blenko, M. W., Mankins, M. C., & Rogers, P. (2010). The decision-driven organization. Harvard Business Review, 88(6), 54-62.