Strategy execution expert Ram Charan is known for his practical, real world perspective on matters such as growth, leadership, governance, and succession. Having worked for more than 35 years behind the scenes at companies such as General Electric, DuPont, and Verizon, Charan shares his firsthand knowledge of the best business practices to help organization get strong, and stay strong. Below, Charan gives his take on how to handle organizational structure changes:
One Ford. One Apple. Now one Microsoft. Last week, Microsoft CEO Steve Ballmer unveiled a restructuring designed to unite the organization behind a single strategy and create high-value experiences for their customers.
Many more organizational structure changes are likely to come. Why? Because digitization has passed power to the consumer, pressing companies to pull together their old decentralized profit and loss fiefdoms to produce experiences consumers find compelling. As Ballmer wrote in his memo to Microsoft employees, “We will see our product line holistically, not as a set of islands.”
But changes in organizational structure get you only part way there. Ballmer acknowledged as much when he went on to say, “The final piece of the puzzle is how we work together.”
Achieving speed and customer centricity depends on a crucial ingredient that’s often missing: integration. It’s the job of a leader to create it.
Integration has two parts to it. The first is to get various functional silos and P&L centers sharply aligned with the specifics of customer requirements. The second applies to the multiple channels a consumer might use as part of that experience — for example, for a bank these would include a website, an ATM, and the lobby of the local branch. The person in charge of online banking might want a different offering than the person leading the branch offices, just as an engineering head might want a different set of product features than a manufacturing VP. Integration means taking into account all of those points of view and making the right trade-offs to give consumers a total end-to-end experience better than the competition.
Structure divides; leaders integrate. Transforming an organization into a synchronized high speed decision-making body is no picnic. In my experience, only a few leaders, such as Ford’s Alan Mulally and Apple’s Steve Jobs, have succeeded in making this crucial transformation.
Leaders who want to adapt should consider the following lessons:
1. Understand that 2% of the people in your organization have tremendous impact on the other 98%. I call this the rule of 98/2. Silos have nurtured people with narrow expertise and perspective; so, in many companies, the 2% is ill-equipped for integration. Make sure the 2% have the distinctive skills and personality constructs required. These include the attitude and drive to deliver a winning customer proposition and the ability to synchronize different viewpoints and make the right trade-offs. Pay particular attention to the values of the decision makers. Collaboration must be in their blood. This is a difficult if not impossible shift for those who have been running their own show.
2. Design “integration mechanisms” and operate them with rigor. You as a leader must be hands-on in creating a rhythm for integration. In creating One Ford, Mulally brought his top team together every Thursday. Attendance was mandatory. Most of the team he inherited is intact, yet the divisiveness of fiefdoms that originated with Henry Ford has now disappeared. The weekly discussions have kept the team on the same page strategically and operationally. COO Mark Fields now runs this mechanism. Apple’s consumer-friendly innovation and Wal-Mart’s quick inventory and price adjustments were the result of similar mechanisms masterfully run by Steve Jobs and Sam Walton respectively.
3. Be sure key performance indicators and incentives reinforce synchronization and integration. Basing a portion of compensation on common goals fosters collaboration.
4. Cultures change when leaders repeatedly and consistently intervene to correct deviant behaviors. It requires discipline and skill to continually demonstrate the behaviors and values conducive to integration and to promptly resolve any underlying conflicts. Through joint work, attitudes get reshaped and energy gets created. Those who cannot adapt begin to opt out.
Companies that lack speed and fail to deliver the right consumer experience on a timely basis can go over the cliff very quickly, as some have already done. It is essential to build the new core capability of integration, starting from the CEO throughout the organization.