Academic journal article The McKinsey Quarterly

Fallacies in Organizing for Performance

Academic journal article The McKinsey Quarterly

Fallacies in Organizing for Performance

Article excerpt

A brief introduction to the most common assumptions that lead astray efforts to boost performace.

THE GAP SEEMS to grow ever wider between the strategies required to compete effectively and the capabilities needed to execute those strategies. Organizations designed in -- and for -- a stable environment can easily grow into unwieldy barriers to performance improvement when the environment becomes turbulent. One CEO described the result as being like "running a slalom race in cement." Most know the feeling.

As the demand for performance ratchets upward, many top managers have tried to lead their companies toward some more responsive form of organization -- only to find the route as problematic as the goal was elusive. Their wish indeed, their need -- to organize for better performance was perfectly reasonable. But the path chosen was not. All too often, the critical process of determining which route to follow was silently, but effectively, thrown off course by one of several common fallacies about how best to get from here to there.

How often have you heard, for example, that ...

... "We ought to be able to 'leapfrog' to the kind of organization we need"

Once a company's strategy has been agreed, there is a strong temptation to move quickly to align the organizational elements necessary to implement it. After all, as everyone knows, structure follows strategy. Why wait? One very important reason: since the organizational implications of these strategies now often extend far beyond mere tweaks at the margin of a business to rather massive overhauls, there is a need to translate them into enough painstaking, nuts-and-bolts detail for them actually to be implemented.

One new strategy, for example, called for a company to develop a much simpler and more responsive customer interface. On the surface the implied marching orders were relatively straightforward: simplify our processes for interacting with customers and make them more responsive to their shifting needs. But what does this really mean in practice? Does it mean consolidating all relevant activities into one organizational unit or, at the extreme, into the charter of one individual? Or does it mean preserving existing functional specialization, but linking the relevant players more tightly through better information and performance measurement systems?

Either way, which activities need to be performed at the customer interface and which can be managed off-line? Moreover, how can the company responsibly leap to key decisions about organization design before these microlevel questions --- and many others like them -- get answered? How can it even hope to do so without sorting through its managers' differing agendas for -- and biases about -- the way the business "ought" to be run? It can't.

In this particular case, the Vice President of Sales took the strong position that, since Sales represented the primary customer interface, all activities involving customer contact should be consolidated into his organization. Not surprisingly, the Vice Presidents of Marketing, Manufacturing, and Distribution all opposed this view and argued that sufficient coordination could be achieved through other means. Each marshaled compelling arguments and repeatedly referred back to the broad statement of strategy as justification for his position. The debate grew sufficiently emotional that each began to view any counter-arguments as personal attacks.

Even when such emotion does not come to the surface, it usually roils the waters just below. If agreement comes easily, it is often because the discussion remains at such a high level of generality that multiple interpretations of what has been agreed are not only possible, but virtually certain. And that, in turn, virtually guarantees endless skirmishing at lower levels of the organization, out of sight of the CEO, as implementation proceeds.

Not surprisingly, the organizational outcomes that emerge from such skirmishing rarely correspond to the true performance needs of the strategy. …

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