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Published: August 27, 2013
 / Autumn 2013 / Issue 72

 
 

How to Design a Winning Company

The eight components of your organizational genome hold the secret to unleashing superior performance.

Sometimes epiphanies come by email—or, in this case, three emails. It was Saturday at 5:17 a.m., and Joanna was already at her laptop. As the new CEO of the fictional Seabright Publishing Company, just four months into the job, she had returned the night before from a 90-day “listening tour” of the company’s operations. She hadn’t slept well.

A recognized turnaround expert, Joanna had been hired by a board looking for organizational change. Seabright had a new strategy. It was shifting from print-based books and magazines for professionals to global digital information products. Everyone agreed this was the right direction for the company. Yet the former CEO, despite making a major push for restructuring and change, hadn’t gotten much traction or support. That failure had cost him his job.

Joanna had concluded that the strategy itself was sound, and Seabright’s people seemed to both understand the need for a turnaround and value the shift to digital media. But they couldn’t execute it, especially when they had to work across company boundaries. The first few digital products were struggling to gain a foothold. When pressed, even the digital product managers grumbled that they’d be foolish to change too rapidly; their bonuses were linked to last year’s metrics. The organization’s culture also seemed to be holding them back. On the listening tour, when Joanna asked people what needed to be fixed, they pointed fingers at one another.

So, on what was supposed to be her first weekend off since taking the job, Joanna woke before sunrise to plot a course of action. First, she checked her email. At the top of the queue was a note from Seabright’s senior vice president of production:

About that R&D project—I think we’re looking at about $13 million. How soon could we seek budget committee approval?

That was followed by one from the head of marketing and consumer insight:

As I mentioned last week, I know that the app will deliver. Only remaining question is costs. I got an estimate today of ~$12–15m. Can we talk further?

The third was from her head of sales:

The new digital tool will address a lot of the issues we had with the numbers last quarter. Expect it’ll be $10 million-plus to develop. How rich are we feeling these days?

Here was a perfect illustration of the problem. Three departments, with similarly sized propositions, that clearly weren’t talking to one another. Joanna rolled her chair backward and closed her eyes. This was more than a communication issue. The company’s organizational design, which had evolved in an ad hoc fashion over its 80-year history, was out of sync with its strategy. Each business leader had good intentions, but the company had too many initiatives under way, all projecting hockey-stick growth and rosy return on invested capital. The reality was underperformance, confusion, conflict, and spiraling costs.

The organizational design was simply too fragmented to meet the challenges the company faced. As long as that design remained in place, Joanna realized, getting Seabright to execute in the digital realm would be like entering a minivan in the Indy 500.

The Case for a New Organization

The Seabright story that unfolds in this article is a composite, derived from several actual cases in various industries. It is written to illustrate how to design a more effective alignment between your strategy and your business structure: how to gain a consistent advantage, or a “right to win” in the marketplace, through the way you are organized. To succeed consistently in the marketplace, a company must have a clear and differentiated way of creating value for its customers, supported by well-defined capabilities—things it does exceptionally well that are central to its ability to perform, and hard to replicate. All this should be reflected in its portfolio of products and services. But those elements will lead to sustainable success only if the company has the right organizational design, one that enables it to execute its strategy.

 
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Resources

  1. Deniz Caglar, Jaya Pandrangi, and John Plansky, “Is Your Company Fit for Growth?s+b, Summer 2012: Organizational design can be an integral part of a more strategic approach to costs, helping companies prepare for the next round of expansion.
  2. Gary L. Neilson, Karla L. Martin, and Elizabeth Powers, “The Secrets to Successful Strategy Execution,” Harvard Business Review, June 2008: Why decision rights and information flow are better starting points for organizational leverage than fixing the lines and boxes on the org chart.
  3. Booz & Company Org DNA Profiler Survey: A short diagnostic tool that explores the formal and informal elements of your organization’s design.
  4. For more thought leadership on this topic, see the s+b website at: strategy-business.com/organizations_and_people.
 
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