Designing a high performance organization

In the 2000s, a high performance organization was defi as one that maximized shareholder returns, and the boundary-less organization became the most prominent design – fi propagated on a global scale by General Electric. This was followed by the formulation of virtual global teams, especially by IT outsourcers such as Infosys, Tata Consultancy Services and the like, which provided seamless global delivery with a “follow-the-sun” model. This was also the period that witnessed the explosion of online social communities, which in turn fueled the exponential growth in e-commerce. Companies such as Amazon, eBay and Alibaba established web-enabled collaborative structures to achieve knowledge-enabled customer centricity.

Case studies

Professor Piskorski led a case study discussion of Procter & Gamble’s organization design challenges over the last 65 years. He started by asking everyone to put themselves in the shoes of A.G. Lafl in 2001, when he was appointed CEO of P&G, and had to choose eitheran incredibly innovative organizational structure that empowered managers in the lower echelons of the hierarchy to make strategic trade-offs (but did not work) orrevert to a more traditional structure. Participants were able to make a call on this important strategic choice after discussing the history of P&G’s organizational design and examining the trade-offs inherent in each organization design.

The discussion underscored three critical insights. First, organizational design has to follow strategy. Firms with relatively straightforward strategies can opt for organizational designs based on product, geography or function. But, as soon as more complex strategies are implemented, intricate organizational designs that feature matrices or even cubes, with plenty of dotted lines, have to be introduced. But these more complex designs always generate additional problems, such as diffusion of responsibility or a slow decision-making process.

This leads to the second insight – there is no such thing as a perfect organizational design – and every design will always have some downsides. This is particularly important to remember when introducing a new formal design: It will solve some problems but it will always create others.

Case Study: Deloitte University

Jorrit Volkers, dean of Deloitte University, Europe, Middle East and Africa (DU EMEA), shared how the corporate university was established, as a component of the organization structure, to serve as a mechanism for building cross-border collaboration within the company.

Deloitte, the world’s largest professional services firm in 2014, comprises about 90 member firms employing over 200,000 people and is present in 150 countries. One of the most unique features of Deloitte’s structure is the primacy of individual member firms, which are separate and independent legal entities and not subsidiaries or branch offices of a global parent company. Instead, they are wholly-owned by the partners of the member firms and organized on a country or regional basis. Member firms pay a license fee to share the “Deloitte” brand. This allows them to practice with standard methodologies, client service models and professional guidelines. Managed locally by their respective managing partners, member firms are headed by an elected CEO, who is a representative of the partners. Such a structure serves to ensure that Deloitte professionals are close to the business on the ground and have significant strength in serving clients at the specific country level. However, a key challenge remained – Deloitte managers, senior managers, directors and partners work within four functions (tax, audit, financial advisory and consultancy) in a matrix structure spanning seven industries but they all operate at different levels across various countries and regions.

In 2011, CEOs of 12 European countries came together to decide how to build a superior culture for cross-border collaboration among member firms in different countries. Such a culture was essential to not only better serve multinationals but also address cross-border needs of local clients in an increasingly interconnected world. One of the options was to establish Deloitte University Europe and it was Volkers’ responsibility to prepare a business case that would convince the CEOs to commit resources to this initiative. Despite the lack of adequate numbers to justify the ROI, Volkers succeeded in converting the CEOs into “believers” because the corporate university was seen as: (i) a credible investment in people, (ii) a platform to foster inclusiveness by bringing diverse people together, (iii) a signal to clients of Deloitte’s commitment to quality and education, and (iv) a means to grow the business through new collaborative networks.

The CEOs committed to a centrally managed Deloitte University Europe budget, which was fixed as a percentage of their annual revenue. Volkers principally focused on developing a curriculum with programs geared toward leadership development, addressing current business needs and generating future business. The Deloitte University Europe soon evolved into DU EMEA as the number of countries that came forward to participate under the corporate university increased from 12 to 25. By the end 2014, the Brussels DU EMEA facility had been operating for over a year and its success was validated by the steadily rising number of training weeks, attendance rates and financial commitments to learning.

Finally, participants underscored the importance of informal structure in organizational design. Professor Piskorski highlighted, “The solution never lies in the formal architecture of the company. Informal architecture is equally, if not more, important. But you can’t leave the informal architecture to develop on its own. You have to plan for it. In fact, your best bet is to think what kind of informal architecture you want, and then design the formal architecture to spawn the desired informal architecture. With complex strategies that companies need to execute these days, such reliance on the interaction of informal and formal structure is the only way to go.”

Learnings

To round off the discussion, Professor Denison emphasized that organization design focuses on tension, conflict and disagreement between product, function and geography. And the importance of organization redesign is especially understood when there is a dramatic change in the business environment. However, most design efforts involve spending too much time drawing the organization chart and too little time redesigning processes and rewards. In this context, he shared Jay Galbraith’s STAR Model,TM which remains one of the most widely-used and accepted organizational design frameworks (refer to Figure 1). This model relies on five categories of design policies: strategy, structure, processes, rewards and people, which determine the direction of the organization, the location of decision-making power, the flow of information, the motivation to perform, and employee mind-set and skills.

For many organizations, the design has to evolve through three phases in order to support (i) the focus on product quality to reach a global standard, (ii) increased service needs along with changing business models and (iii) addressing market needs by creating project teams to bring business units closer to the markets. If these three stages do not kick in at the right time, the organization’s growth will tend to stall. Professor Denison summarized the key takeaways:

• Organization redesign has a greater probability of succeeding if it occurs before it is necessary. It is really difficult to achieve if the company is already in crisis mode.
• Each stage should build on the previous stage and lead to a gradual transformation, rather than making a leap from the past to the future.
• A few strong ideas are better than many. It is not feasible to emphasize everything.
• A company’s principle asset is its talent pool, and the key is to ensure that talents deliver on customer needs.
• Successful organization redesign involves both dreams and details. Vision is a dream with a deadline.