Recognizing those different sources of value, managing director Phil Bentley decided that the best way to structure the company was by customer segment. This new structure allowed him to place accountability for decisions that directly affected customers, such as service levels, positioning, and product bundling, in the business units. Corporate headquarters could focus on noncustomer-facing matters such as IT and finance.
The alignment of structure and decisions helped British Gas improve its performance significantly. Its bad debt fell, and the business began growing for the first time in years.
If decision-driven reorganization were just about an audit and, if necessary, aligning the macrostructure with the sources of value, it would be relatively easy to get your next reorg right.
But the messy reality of business is that big changes need to be followed up with a whole host of smaller changes. In most reorgs, this stage of the process usually concentrates on assigning turf and setting out a hierarchy with defined reporting lines.
Once again, this approach is misguided, because it does not use decisions as the unit of analysis. People end up with responsibilities that are defined either too broadly or too narrowly, given the decisions they need to make.
Responsibilities that are too broad result in insufficient supervision and limited accountability. Those that are too narrow can create needless hierarchy—too many watchers and too few doers—and can encourage micromanagement. The energy giant BP provides an excellent example of the consequences of an overly complex microstructure. Back in , BP had just a handful of geographic and customer units, which were supported by a few central functions.
After a period of significant merger and acquisition activity, however, the company added new geographic areas and created new functions. Spans of control narrowed, and the number of management layers increased.
Each decision node at the company introduced a different set of hurdles for new products, business development deals, and even options for reducing costs. The effects were predictable: Decision making and execution slowed, and costs mounted. In decision-driven reorganization, the challenge is to determine exactly what authority decision makers need, regardless of their organizational status, if they are to make good decisions and execute them effectively.
BP saw that the people who were best equipped to make decisions had to get too many approvals from higher-ups or from regional heads, which delayed execution. So its new chief executive, Tony Hayward, launched a comprehensive simplification program designed to return decision rights to the appropriate people.
The initiative eliminated layers of middle management, centralized some operations, and reduced overhead expenses by one-third.
It moved the number of decision nodes back toward a target of 5, Any change in structure may necessitate changes in decision roles, incentives, information flow, performance metrics, and processes.
Local branch offices were combined into regions, and national account teams were established. Measures and incentives were reset to encourage collaboration across units and focus the sales force on key accounts.
The reorganization at UD Trucks was critical, of course—the new strategy could not have been implemented without it. But goals, processes, information, measures, and incentives also needed to be aligned to make the new structure work. Finally, you need to help managers develop the skills they need to make decisions quickly and translate them into action consistently.
They invest as needed to ensure that people have the skills required to be better decision makers over time. In , Hospira embarked on a major change program. The program included an effort to build new decision capabilities across the company. Executives learned to use tools that would help them get the who, what, when, where, and how of each decision right.
The workshops also helped leaders learn and adopt the specific behaviors that would be required to make the changes stick. They also began to gather survey data that could help them assess progress in building and sustaining decision capabilities. But any new structure will create new boundaries that people may find hard to cope with and that may make effective decision making more difficult. To get around this problem, it may be necessary to overlay your new structure with some connections that help people reach beyond those boundaries.
In , faced with the bursting of the dot-com bubble, Cisco reorganized. We find that the process accelerates decision making without sacrificing decision quality. The structural overlay of councils and boards also seems to help functional leaders collaborate and make effective decisions about budgets and resources. Today, those teams are operating at full steam. Boards organized around specific market opportunities, such as collaboration and virtualization within the enterprise segment, develop tailored strategies and oversee execution.
Finally, four cross-segment councils focus on the arcane but critical topics of emerging solutions, connected architecture, emerging countries, and connected business operations.
These interlocking councils and boards have enabled Cisco to maintain its leadership position in the complex, fast-moving telecommunications space and build on the strength of its global functional structure. Creating parallel decision-making authorities may appear to be in conflict with our general principles of simplicity and clear accountability, but we believe this approach leads to a more streamlined process.
They allow fewer people to be involved in making and executing critical decisions—in effect, reducing the number of decision nodes. And while this was not impossible, it clearly was not probable in such a tightly controlled police state. This is hoping for a miracle; and the trouble with miracles is not that they happen so rarely, but that they are, alas, singularly unreliable. Everyone can make the wrong decision. In fact, everyone will sometimes make a wrong decision.
But no executive needs to make a decision which, on the face of it, seems to make sense but, in reality, falls short of satisfying the boundary conditions. But if what will satisfy the boundary conditions is not known, the decision maker cannot distinguish between the right compromise and the wrong compromise—and may end up by making the wrong compromise.
I was taught this lesson in when I started on my first big consulting assignment. It was a study of the management structure and policies of General Motors Corporation. Alfred P. This is your task. My only instruction to you is to put down what you think is right as you see it. There is not one executive in this company who does not know how to make every single conceivable compromise without any help from you.
The effective executive knows that there are two different kinds of compromise. The purpose of bread is to provide food, and half a loaf is still food. Half a baby, however, does not satisfy the boundary conditions. For half a baby is not half of a living and growing child. It is a waste of time to worry about what will be acceptable and what the decision maker should or should not say so as not to evoke resistance.
The things one worries about seldom happen, while objections and difficulties no one thought about may suddenly turn out to be almost insurmountable obstacles. Converting the decision into action is the fifth major element in the decision process. While thinking through the boundary conditions is the most difficult step in decision making, converting the decision into effective action is usually the most time-consuming one.
Yet a decision will not become effective unless the action commitments have been built into it from the start. Until then, it is only a good intention. Small wonder then that the people in the organization tend to view such statements cynically, if not as declarations of what top management is really not going to do.
Converting a decision into action requires answering several distinct questions: Who has to know of this decision? What action has to be taken? Who is to take it? What does the action have to be so that the people who have to do it can do it? The first and the last of these questions are too often overlooked—with dire results. A major manufacturer of industrial equipment decided several years ago to discontinue one of its models that had for years been standard equipment on a line of machine tools, many of which were still in use.
It was, therefore, decided to sell the model to present owners of the old equipment for another three years as a replacement, and then to stop making and selling it.
Orders for this particular model had been going down for a good many years. But they shot up immediately as customers reordered against the day when the model would no longer be available. Consequently, nobody informed the purchasing clerk who was in charge of buying the parts from which the model itself was being assembled. His instructions were to buy parts in a given ratio to current sales—and the instructions remained unchanged.
Thus, when the time came to discontinue further production of the model, the company had in its warehouse enough parts for another 8 to 10 years of production, parts that had to be written off at a considerable loss.
The action must also be appropriate to the capacities of the people who have to carry it out. A large U. To protect this money, top management decided to invest it locally in businesses which would: 1 contribute to the local economy, 2 not require imports from abroad, and 3 if successful, be the kind that could be sold to local investors if and when currency remittances became possible again.
To establish these businesses, the company developed a simple chemical process to preserve a tropical fruit—a staple crop in both countries—which, up until then, had suffered serious spoilage in transit to its Western markets.
The business was a success in both countries. But in one country the local manager set the business up in such a manner that it required highly skilled and technically trained management of a kind not easily available in West Africa. In the other country, the local manager thought through the capacities of the people who would eventually have to run the business. Consequently, he worked hard at making both the process and the business simple, and at staffing his operation from the start with local nationals right up to the top management level.
A few years later it became possible again to transfer currency from these two countries. But, though the business flourished, no buyer could be found for it in the first country. No one available locally had the necessary managerial and technical skills to run it, and so the business had to be liquidated at a loss. In the other country, so many local entrepreneurs were eager to buy the business that the company repatriated its original investment with a substantial profit.
The chemical process and the business built on it were essentially the same in both places. And what can they do? This action commitment becomes doubly important when people have to change their behavior, habits, or attitudes if a decision is to become effective. Here, the executive must make sure not only that the responsibility for the action is clearly assigned, but that the people assigned are capable of carrying it out. Thus the decision maker has to make sure that the measurements, the standards for accomplishment, and the incentives of those charged with the action responsibility are changed simultaneously.
Otherwise, the organization people will get caught in a paralyzing internal emotional conflict. Consider these two examples:. Only the most effective executive can do what Vail did—build the execution of his decision into the decision itself. Audio-taped interviews were transcribed verbatim, then analyzed for key phrases that represented participant decision criteria.
Decision criteria concepts were combined to construct an older adult smart technology decision tree model. In addition to real-world experience, furthering your education by taking a management training course can equip you with the skills and knowledge to enable both your team and organization to thrive. Do you want to design, direct, and shape organizational processes to your advantage?
Explore our eight-week online course Management Essentials , and discover how you can influence the context and environment in which decisions get made at your organization. Matt Gavin Author Staff. Decision-Making Techniques for Managers 1. Take a Process-Oriented Approach One of your primary responsibilities as a manager is to get things done with and through others, which involves leveraging organizational processes to accomplish goals and produce results.
When facing a decision, there are two key mindsets to consider, which are: Advocacy: A mindset that views decision-making as a contest. In a group with an advocacy mindset, individuals seek to persuade others, defend their positions, and downplay their weaknesses.
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