Don’t reorganize. Fix the fundamentals instead

.04.25.14 thumb fundamentalsBY TOM COX | OB BLOGGER

Too many of us in business choose to reorganize rather than fix underlying issues.

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04.25.14 fundamentalsBY TOM COX | OB BLOGGER

Portlanders will vote on the creation of a new water district in May, potentially wresting control of water from the City Council.

In other words, a reorg.

It’s not just voters who feel this urge, when frustrated by performance. Too many of us in business choose to reorganize rather than fix underlying issues.

We trained hard, but it seemed that every time we were beginning to form up into teams we would be reorganized. Presumably the plans for our employment were being changed. I was to learn later in life that, perhaps because we are so good at organizing, we tend as a nation to meet any new situation by reorganizing; and a wonderful method it can be for creating the illusion of progress while producing confusion, inefficiency and demoralization.

 – Charlton Ogburn in “Merrill’s Marauders” (Harper’s Magazine, 1957)

That illusion of progress is deliciously tempting to managers, business owners, even voters.

Don’t fall for it.

To reorganize in the face of problems is almost always a mistake. It usually sidesteps the real work of fixing fundamentals.

Indeed, those few business reorgs that actually work, are undertaken after a painstaking analysis of what’s wrong and how to fix it.

Consider the successful reorg of Swiss giant ABB:

One reason for [ABB’s] near-failure: Key decisions about big power-project bids involved negotiations among dozens of different ABB units, each with its own profit goals and incentives, and the process dragged on, often failing to produce competitive bids.

A new CEO, Jürgen Dormann, analyzed the decision failures and then cut through the tangled web by consolidating divisions and centralizing profit-and-loss accountability. The reorg worked–it restored ABB’s ability to generate fast, competitive bids–because Dormann’s team knew that the purpose of the new structure was to support and smooth the progress of those decisions and others that were equally important.

(Source: Forbes, 30-Jul-2010)

The success of the reorganized ABB tends to prove the accuracy of the analysis — ABB’s problems were caused (or exacerbated) by its structure, and the new structure was designed specifically to address the firm’s strategic needs for faster and more competitive bids.

Let’s look at your business, and at Portland’s water bureau.

(I’ve escaped Portland and live safely in the low-cost water utopia of the Tualatin Valley Water District, so I have no dog in this fight.)

Here are the key questions to ask about a potential reorg:

  1. What are my presenting problems?
  2. Which of my problems are structural?
  3. Would a new structure fix my problems?
  4. What should the new structure be?
  5. How do I execute the reorg?

Presenting Problem

Problems come in all sizes and shapes. A quality problem differs from a cost-structure problem, and a staffing problem differs from a regulatory problem.

We often mis-diagnose our problem’s root cause, however.

Portland’s water system costs, for example, have multiple drivers — including expensive federal mandates, overdue maintenance, and a declining customer base that shifts fixed costs onto fewer ratepayers. The customer-base problem itself comes from at least two causes — escalating costs (a potential vicious cycle) and bad customer service. The bad customer service is almost certainly caused by a poor service culture that’s itself probably caused by an entitled, insular, bureaucratic leadership focused more on the City Council than on customers.  Another concern is the City Council using water system funds to build things only marginally related to water.

For your situation: list all your presenting problems and perform a Five Whys analysis to uncover likely root causes.

Structural Aspects of the Problem

Looking only at your root causes, ask which are structural.

For Portland water situation, let’s pretend our analysis above is both accurate and complete. (For another, far deeper analysis see the City Club of Portland study.)

Which might be helped by a changed structure? Three: overdue maintenance, customer service, and the misallocation of funds by the City Council.

For your situation, list the root causes that have structural components. Be clear on what truly is caused by structure and likely to be fixable.

Would a New Structure Help?

Now you have to get candid with yourself and set aside any enthusiasm you have for your shiny new imaginary structure.

Suppose you have two structural problems, one caused by too much centralization and the other caused by not enough centralization. You will be deeply challenged to find a single new structure that solves both.

Be candid too with the new problems you’ll cause with your new structure.

For example the Portland water reorg, according to the City Club analysis, creates as many new problems as it purports to solve. (I’m personally dubious about having a parallel elected water board alongside yet separate from the City Council.)

What Structure to Pick

If you have competing options for new structures, lay them out in a grid, with options across the top of your columns and one problem or issue for each row. Score how well each option solves each problem or issue. Do add weight to issues of greater importance and impact.

How to Reorganize

Reorganizing is one of the most disruptive things an organization can do. The simple guidance is, involve staff early, keep them informed of the issues, make it clear that the reorg is for a good reason, get their input on the details of how to execute the reorg, and look for ways to use the reorg to help staff grow and develop.  Plan it carefully and execute it quickly.  Lead discussions with your senior team on topics like Kotter’s 8-Step Process for Leading Change.

Should voters approve the Portland water reorg? I say, not the one on the ballot, no. Many of the presenting problems can be fixed without structural change, and others (like federal mandates) can only be endured — no new structure would help.



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