The Right Organization
The management of a company freely makes decisions for their companies in the face of avoiding entropy. At the highest level, these decisions include:
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Choosing which businesses to be in
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Choosing the right business strategy (or business plan) with components such as a sales and marketing strategy, a facilities strategy, a legal strategy and so on
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Choosing the right systems, including decision-making systems, incentive systems, management systems, etc.
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Choosing the right organization structure and
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Choosing the right people
In his book Good to Great, Jim Collins studied 11 companies whose stock outperformed the market by 3x over a 15 year period. One of the tenets made in the book is to first get the right people, then decide what you’re doing. Though there may be some debate about choosing the right businesses and organizing properly before getting the right people, there’s no question that deciding on the right organization structure can be critical.
Recent evidence of an example for organizing properly is Nike. For years, Nike was organized by product type: shoes, apparel, equipment, etc. In 2005, Mark Parker, the new CEO of Nike, organized entirely around sports: golf, soccer, skateboarding, etc. Though it took some time to see benefits, Nike began growing at a stronger pace and the stock market has rewarded them for the results. Most certainly this was a painful reorganization of the company but has paid huge benefits. On the increase, Nike Skate, the division that makes and sells products to the Skateboarding world, went from a stalled and money-losing operation of $25 million per year to $200 million per year. What a case study on the proper organization structure!
Surely Nike has always had great people but organizing properly for your market is critical. I wonder what Microsoft and Yahoo might be able to glean from this, should the merger be successful and even if it is not.
Thanks for pointing out the importance of an effective organizational structure. Many people use the “people first, then the what” concept from Good to Great too myopically.
-John
Good to Great has some excellent points about getting the right people on the bus. For large institutions, whose diversification is much greater than smaller companies, first focusing on great people can tap the intellect of those individuals to help choose the “what” and reduce reliance on non-core assets. That single focus is what Jim Collins refers to as the “hedgehog” concept. In earlier stage companies where the “what” is more defined, it is more critical to organize around rapid and precise execution of that hedgehog. It is also a common mistake to allow the organization structure to be driven by the people. While some compromises can and should be accommodated, the basic main organization should be designed properly to maximize revenue and profit growth as well as to maximize customer satisfaction.