Monday, August 11, 2008

Organizing for value

These simple statements are profound since I saw this issue throughout my career. Part of being a successful manger in a large corporation was how to “hide” (we called it protecting)certain projects to keep them going and avoid the tough decisions. These actions often led to inefficient resourcing of the critical projects needed to meet both the long and short term goals. As this excerpt implies, our organizational structures often encouraged this activity.
I would strong suggest going to the full site

• When large companies are organized in the traditional division structure, strategic decisions too often fall to managers under pressure to meet budgetary demands. Success in one unit masks underperformance in others, while ventures that promise strong future growth go underfunded because they don’t contribute to short-term bottom-line numbers.

• One way to shake things up is to review the strategy and performance-management processes and to make decisions at the more granular level of value cells. Value cells are smaller units (20-50 for a large company) that represent the economics of the individual, simple businesses that any company is built of, such as customer segments, product groups, geographic markets, and new technologies.

By emphasizing these value cells rather than aggregated bottom-line division numbers, this approach sheds light on which activities should be the target of additional investment—and which should be divested entirely. Changing managers’ roles won’t be easy, but in the long run, it will be worth it.

1 comment:

Bob Cooper said...

A couple comments from Mike Giersch, Vice President, Strategic Planning, IBM Corporate Strategy:

Our EBO (Emerging Business Opportunity) approach has been one way to deal with this to some degree... but more comprehensive management of a very large number of smaller entities from corporate has not been something that the organization has been interested in.... from the standpoint of feeling like we are disempowering line management (who are running very large units within the firm)…….. actually the most important thing we've done recently organizationally is to restructure our geographic organization to major and growth markets to isolate the growth ones (e.g. emerging markets like China, India, eastern Europe...Africa... etc..) to help ensure that we shift enough focus and resources to them... versus assuming our previous geographic line-up which had them combined in parts of the world...