Reference: Blenko,
M. W., Mankins, M.
C., & Rogers, P.,
(2010). The Decision-
Driven Organization.
Harvard Business
Review. June: 54-62
MD. MESBAH UDDIN
Outline
Background
Overview
Decision audit
Decision placement in the org
The Six Steps to Decision-Driven Reorganization
Background
What is the key determinant of an organization’s
financial performance?
Many CEO assume that organizational structure is a
key determinant of financial performance.
Nearly half of all CEOs launch a reorg during their first
two years on job.
Motives : cutting costs, promoting growth, shaking up
a culture, shifting strategic focus etc.
Reorgs almost always involve making major structural
changes in pursuit of better performance.
Background
Most reorgs fall flat
Study of 57 reorgs between 2000 & 2006 found that
fewer than one-third produced any meaningful
improvement in performance.
Most had no effect, and some actually destroyed value.
This failure is rooted in a profound misunderstanding
about the link between structure and performance.
Background
Structure vs. Performance
Research reveals no strong statistical relationship between structure
and performance.
Example:
Yahoo: In December 2006, CEO announced a sweeping reorganization
of the company, replacing Yahoo's product-aligned structure with one
focused on users and advertiser customers. Yahoo executives created
new roles and management levels to coordinate the units. The
organization ballooned to 12 layers, product development slowed as
decisions stalled, and overhead costs increased.
Yahoo's experience shows how a lack of attention to the decision-making
process can thwart the best-intentioned reorganization and
undermine performance.
Background
Decision vs. Performance
There is a tight link between performance and decisions
Decision effectiveness and financial results correlated at a 95%
confidence level or higher for every country, industry, and
company size in the sample.
The companies that were most effective at decision making and
execution generated average total shareholder returns nearly six
percentage points higher than those of other firms.
Top-quintile companies score an average of 71 out of 100 in
decision effectiveness, while companies in the other four
quintiles score, on average, 30 and below. i.e., the typical
organization has the potential to more than double its decision
effectiveness.
Overview
A company’s assets, capabilities, and structure are useless unless
executives and managers throughout the organization make the
essential decisions and get those decisions right more often than
not.
In reality, a company's structure will produce better performance
if and only if it improves the organization's ability to make and
execute key decisions better and faster than competitors.
If management can synchronize the organization's structure
with its decisions, then the structure will work better and
performance will improve.
Overview
“When reorganizing a company,
decisions rather than structure
should be the focus.”
Overview
To reorganize around decisions, focus on six steps.
1. be clear about which decisions are most important.
2. figure out where in the organization those decisions need to
be made.
3. organize the structure around sources of value.
4. figure out the level of authority decision makers need, and
give it to them.
5. adjust other parts of the organizational system to support
decision making and execution. And
6. equip managers to make decisions quickly and well.
How to begin
Reorganization?
SWOT analysis
Many reorganizations begin with a SWOT
analysis: i.e. analyzing the strengths, weaknesses,
opportunities, and threats of the organization
But this may end up with an organization with
misaligned strategy- all because of ignoring
decisions.
The proper place for this type of SWOT analysis is
earlier- while determining company's strategy; not
before organizational change.
What is the Better Way to Begin
Reorganization?
Conducting a Decision Audit: a better
way to begin Reorg
Decision audit is to identify the key decisions
management need to make and execute to create
maximum value for the stakeholders.
The set of key decisions for a growth strategy, for
instance, will be different from the set for a return-
focused strategy.
A comparison is made between the old and new decision
The bigger the difference-and the greater the obstacle
presented by the organizational structure- the more
aggressive reorg will be needed
Decision Audit: Key Considerations
Big, one-off decisions that individually have a
significant impact. If a company make mistake in this
regard, it will have to live with the consequences for
many decades.
Example: Petrochemical companies must make periodic
multibillion –dollar investment decisions, such as if, when, or where
to build a new ethylene cracker, which is critical to production. If a
company builds at the wrong time, in the wrong place, or with the
wrong technology, it will have to live with the consequences for
many decades.
Decision Audit: Key Considerations
(cont.)
Small, routine decisions that cumulatively have a
significant impact.
Example: Amazon's continuing success can be attributed partly to a
host of savvy merchandising decisions, including those related to
special prices and shipping discounts, suggestions for
complementary purchases, and targeted e-mail notices about new
offerings. None of these decisions carries much value in anyone
instance. But cumulatively they can mean the difference
between success and failure.
Decision Placement in the
Organization
Customer related decisions: Pricing decisions need
to be coordinated across customer segments and
channels.
Product decisions must be considered from both an
internal and external perspective.
Channel decisions: In companies with many
different products or services, both the critical
decisions themselves and where they should be made
may vary widely across the organization.
The Six Steps to
Decision-Driven
Reorganization
1. Identify Your Organizations Key
Decisions
2. Determine where in the
organizations those decisions
should happen
3. Organize the macrostructure around sours value
Managers began by examining differences in profitability
by service, by geographic area, by customer segment ,
Performance crisis
Controlling production cost,
By the best way to structure the company
Corporate headquarters could focus on noncustomer
facing matters such as it & finance.
4. Figure out what level of authority
decisions makers need
in decision driven reorganization , the challenge is to
determine exactly what authority decision makers
need.
Top level ,mid level, lower level
5. Align other elements of the
organizational system , such as
incentives, information flow,&
processes with those related to
decision making
Any changes in structure may
necessitate changes in decision on
role ,incentives, information flow,
performance metrics, processes.
6. Help Managers develop the skills
& behaviors necessary to make
& execute decisions quickly &
well
Finally you need to help
managers develop the skills they
need to make decisions quickly
and translate them into
consistently
Thanks to All
