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(originally published by Booz & Company)


Treating the Troubled Corporation

When everyone agrees but nothing changes, it’s a sign that organizational inertia is holding your business back.

Cooking the books isn’t the only sure path to notoriety for companies these days. Far more endemic is corporate dysfunction; many companies suffer from it, and curing it could mean the difference between achieving a superior performance hailed with headlines in Fortune or the Wall Street Journal and standing in the line that leads to Chapter 11.

Why is it companies have the right strategy and a clear action plan, but they can’t seem to execute?

The symptoms of corporate dysfunction are disturbingly familiar. We’ve all sat in meetings where people constantly advance their own agendas over the company’s, and it takes 10 executives to make routine business decisions. Everyone suffers when decision makers — overburdened or lacking access to the right information — impose unnecessary delays on or inject other inefficiencies into programs and processes. And who hasn’t experienced the maddening struggle to get different organizational units or functions to work together toward a common goal? From the CEO on down, business leaders routinely express variations on the same fundamental laments:

“We have the right strategy and a clear action plan, but we can’t seem to execute.”

“Our industry is in upheaval, but our people don’t recognize it or won’t do anything about it.”

“The merger is supposed to be behind us, yet even Wall Street recognizes that we’re still acting like separate organizations.”

In essence, they’re all asking the same question: Why is it that everyone agrees but nothing changes?

Individually, these dysfunctional behaviors are irksome; collectively, they can stunt the growth of an organization and make the difference between success and failure as the corporation is, in effect, paralyzed by its own misalignment — as one client described it, “we can’t seem to get out of our own way.”

People, Knowledge, Incentives
Actually, the seeds of this corporate paralysis are more visible than one might think. Although we often view companies as monolithic wholes, they’re not. Organizations are collections of individuals who typically act in their own self-interest. People make decisions that are based on their ability to process the information available to them, and they rely on others to act on their behalf, or in coordination with their own efforts. As a result, superior and consistent corporate performance is produced only when the actions of individuals within the company are aligned and are in synch with the overall strategic interests of the organization. Achieving this becomes more difficult as companies become larger, because growth, while obviously a critical goal, increases complexity. As complexity increases, aligning the interests of an individual with the company’s interests becomes much more difficult.

We often see companies as monolithic wholes, but they’re really collections of individuals who typically act in their own self-interest.
Still, for small and large corporations the answer is the same. Organizations thrive when the right people — armed with the right information and motivated by the right incentives — wield clear authority to make crucial decisions. In other words, companies need to build themselves with three critical dimensions: people, knowledge, and incentives.

Dimension 1. People: Who Decides What?
Organizations are essentially Hobbesian cultures — communities of individuals and groups that act, more or less, selfishly. To turn this to a corporation’s advantage, it’s important to understand how authority is distributed among business units and company roles so that individuals are given appropriate tasks and tools to perform at their highest level; that is, where they produce the best results for themselves and ultimately for the organization. This exploration into the company management moves quickly past the lines and boxes of the organization chart into the underlying mechanics of how and where decisions are truly made. As organizations refine the assignment of authority and roles, they must actively address potential trade-offs. For example, the complexity of the information processing required in a single position may dictate decentralizing operations to simplify the job and clarify the purpose of the activity. Or business units may have to be combined in order to reduce interdivisional transaction and coordination costs.

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  1. “Karen Stephenson’s Quantum Theory of Trust,” by Art Kleiner, s+b, 4Q 2002. Click here.
  2. “The Organization vs. the Strategy: Solving the Alignment Paradox,” by Jeffrey W. Bennett, Thomas E. Pernsteiner, Paul F. Kocourek, and Steven B. Hedlund, s+b, 4Q 2000. Click here.
  3. “In a Slump? Realign, Don’t Re-Engineer,” by Jeffrey W. Bennett and Steven B. Hedlund, s+b enews, 5/01/01. Click here.
  4. “Constrained Change — Unconstrained Results,” by Jeffrey W. Bennett, s+b, 3Q 1998. Click here.
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