Another powerful lever that affects the critical path is the organization’s structure; that is, how it organizes itself to create value for its customer. For too many organizations, management structures the company to meet their own psychological comfort. If the CEO is a control freak, she sets up a command-control structure with clean lines of hierarchical authority. If the CEO believes in inclusive teams, he designs a flatter structure with semi-autonomous teams.
Alternatively, companies will look at traditional structures to pick one for themselves. Often, they will start with a functional structure of R&D, operations, sales/marketing, finance, legal, HR, etc. As the business grows by either products or geographically, they might move to product or geographic divisions. These divisions may have their own support departments, like HR and accounting. Once the business gets very large with many product lines selling across multiple regions, the company may set up a matrix structure to enable better coordination and communication across the many units. Organizational functions like operations and marketing will populate one side of the matrix, while business units or geographical divisions will be arrayed along the other side.
Employees often tend to favor these traditional organizational hierarchies because they are familiar with them. They map well with their existing mental models as to how companies are supposed to be organized. It causes them less cognitive confusion or overload by helping them understand quickly how they fit into the firm and what their responsibilities are. It also makes it easier when they leave one company for another if the companies are structured the same way. It’s like walking into a familiar grocery store and knowing what’s in the various aisles.
One problem with these structures is that they are designed around either the personal needs of top management and employees or the internal coordination needs of the organization. They are designed with an inward focus. The question is whether these structures serve an overriding business purpose.
As most design experts will tell you, form should follow function. For example, if fuel efficiency is your primary goal for a car, then you need to consider car designs that minimize wind drag on the car. Based on that function, then teardrop-shaped cars are in, and boxy cars with protruding ornamentations are out. You don’t start with a boxy design, and then try to fiddle around the edges to reduce its inherent drag flaws. You can fiddle all you want, but it will never be as fuel efficient as the teardrop design.
The choice, then, of that most appropriate “function” is critical. You start with what you want to accomplish and then build a structure that will best achieve your goals. So, do you want to make your CEO and employees “comfortable” or your critical path most achievable?
Rarely do I encounter an organization that creates a structure that makes the critical path its starting point. Rarely do I hear that to create the most value for our customer, we have structured the company in this way. Rarely have I heard that our organizational structure signals to employees what their role is on the critical path and what they are supposed to do on it. Rarely have executives told me that our organizational structure was specifically designed to make the critical path smarter, faster, shorter, better, more effective, and more profitable for our customers and for us. The organizational structure might do these things—but that is a byproduct, not the intended outcome.
I often ask executives whether their customers have a preferred organizational structure that they would favor when interacting with the company. What about suppliers? How about any other important stakeholders? Do they sing your praises about how easy your structure makes it when they deal with you? Or, do you hear gripes about how painful it is to find who they should talk to or who makes decisions?? What, if any, suggestions have these outsiders made?
One consideration is to look at how your customers are organized. Is there any advantage to the critical path to designing your structure so that it makes it easier to do business with your customers? For example, most major defense firms, like Lockheed Martin, mirror their organizational structure to match the Pentagon’s structure almost department by department. This enables them to interact quite seamlessly with their customers. Since these firms also hire many retired military, it reduces the learning curve of these new hires. The company feels very comfortable to them since it so closely resembles where they came from. They know the chain of command and how decisions are made, which, in turn, helps them respond more quickly and thoroughly to their customers. The organizational structure supports, rather than gets in the way, of the critical path.
The danger to the mirroring approach is that today’s structure can keep you from seeing what structure you will need to be successful on tomorrow’s critical path. Using our defense firm example, the structure works well for today’s critical path with the Pentagon. But what happens when defense budgets get cut and you have to look to private-sector markets for growth? A slow-moving bureaucratic structure that is used to 10-year government contracts can stifle the innovation and entrepreneurial thinking necessary to adapt to new markets.
Now, matching your structure to the customer’s structure is easier to determine if you are in a business-to-business situation, as opposed to serving hundreds, if not thousands, of retail customers. But it is still worth structuring around your retail customers. Ask yourself, how do our retail customers go about making a purchase? What steps are involved? What drives their decision making? What makes them highly satisfied with your products/services and what are their complaints?
Answers to these questions might reveal what kind of departments you need, such as a customer support department, market research department, or a training department for store employees. It might also tell you that you need to organize around types of customers, such as urban vs. rural, single millennials vs. Gen Xers with young families, or men vs. women. Or, you might have to organize around customer behaviors and habits, such as online shoppers vs. in-store ones, bargain basement shoppers vs. bespoke customers, or stay-at-home moms vs. stay-at-home dads.
As one example of this theme, customers in a manufacturing company complained to customer support about product quality. The plant manager, however, didn’t see it as his problem and wouldn’t address it, saying that it was customer support’s issue to deal with dissatisfied customers. The CEO, however, restructured the company, taking customer support out of the marketing and sales department and putting it under manufacturing. This new structure now made customer complaints the plant manager’s problem. He quickly turned his attention to eliminating the problem.
Now, you might be thinking: why didn’t the CEO fire the plant manager and replace him with someone more concerned with the critical path? The reason is that the CEO saw other valuable traits in him. He used the organizational structure to overcome the plant manager’s critical-path blind spot.
When considering your organizational structure, you need to consider what your customers care most about and what could harm your relationship with them the most. For example, in a highly networked company, like airlines, telephone networks, power utility grids, or overnight delivery services, a major threat is one or more nodes of the network crashing and bringing the whole network down. These businesses need a strong central control structure that has its finger on the pulse of every node in the network, i.e., a quick alert system that can detect when trouble is brewing and can notify the entire system immediately. It also needs a strong, decentralized sub-structure at the nodes that can respond quickly at the local level to seal off the damage and limit its effect on the rest of the network.
Critical Path Action Items
What is your organization’s structure?
Is it designed to reflect and reinforce the critical path?
Do customers find your organizational structure works best for them?
Does the organizational structure help you do your critical path work better?