Organizational Analysis

How an organization is structured has enormous consequences not only for the success of its business but, also, for the success of its employees.

Though it is obvious why understanding organizations is critical to business success, nevertheless it is worthwhile to review these reasons. The structure of a firm either enhances or hinders efficiency and productivity. In other words, how information flows and to whom, whether and how many parts of the work process is redundant, how clear and precise is the reporting structure, if and how new ideas and products are promoted - these and many more issues are obvious consequences of structure and profoundly affect the success of the business.

What may not be as obvious but is clearly as influential is how organizational structure either supports or blocks employee behavior. There is many an employee who was terminated from one company to become a star in another similar position in a different enterprise. Why? In many cases organizational structure makes it impossible for such a worker to blossom and produce. For example, a dedicated but independent-minded employee will feel demoralized if she has to work with poor tools or machinery that frequently break. A repetitive simple-minded work assignment will dull the instincts of many good workers. The creative employee who doesn't find a fertile field in a company for his ideas will find more challenging opportunities elsewhere. The list of examples can go on and on.

There are four basis elements or categories in the analysis of the structure of an organization. They include:

The firm's vision and strategy (whether explicit or not)

The flow of information and work (including all systems, from vendor relations to customer service and everything inbetween)

The culture of the organization

Its people (their selection, qualification, compensation, promotion, career pathing, their succession)

We will touch on the important highlights of the first three categories. The fourth element, a firm's people, will not be covered in this program.

HOW STRATEGY AFFECTS STRUCTURE

There are innumerable ways at looking at strategy and its components. Our focus here is not on strategy per se, but rather on how strategy is translated into a supporting and supportive organizational structure. A very useful way of viewing business strategy is to outline how businesses deliver customer value, which, after all, is the goal of every business. A recent Harvard Business Review article (January/February, 1993) by Michael Treacy and Fred Wiersma suggest three ways:

(1). Being "customer intimate", i.e. being able to anticipate customer needs and reacting accordingly.

(2). Providing product leadership, i.e. creating products and services that satisfy customer needs.

(3). Exhibiting operational excellence, i.e. continually improving how product and services are provided customers.

Each strategic aim requires a different structural focus. The strategies themselves overlap and, in fact, no one strategy is or can be pursued entirely in isolation from the other. To be successful requires a firm to actively seek excellence in at least one of the three strategies and to be good in the other two. The strategy that becomes prime for a company, however, has implications for its organizational structure.

CUSTOMER INTIMACY

"Customer intimacy" entails precisely segmenting and targeting markets, acquiring detailed customer knowledge, developing an operational flexibility that allows for immediate response to customer need, and securing tremendous customer loyalty. The value added component of this strategy is knowing the customer so well that what he/she needs is immediately provided.

For a business to pursue this strategy, what is demanded is a very responsive customer service department and a very active marketing and sales department geared to relationship selling. In fact, these departments drive the company. They are the firm's primary interface with the customer base. Customer information is continually solicited, sorted, ordered, and immediately distributed throughout the company so that it can be acted upon immediately. Information systems are state of the art. The recipients of this information have to be able to act quickly to stay on top. Thus, they have to be very team centered (to analyze the information and to translate it into new products and services), and they have to have a great deal of leeway with respect to decision making and authority (to respond promptly to customer needs).

A growing and successful construction company prided itself on building expensive homes geared to client needs and adaptable to client wants. However, client requirements were initially not addressed in depth, methods to solicit this information were not developed (e.g., the use of software that would enable clients to imagine "being inside the house" as it was being built), contact was initiated only when another payment was due, and only the owner could fix the final price of the house. The net result was that the owner, in effect, convinced buyers what they should want, thereby dramatically increasing the number of client-initiated changes as the clients along the way became clearer about what they wanted.

Information about customer-initiated changes was frequently communicated incorrectly or late to the field, even more increasing construction costs due to the need to undo work that had been already completed. Sales people were pre-empted at closing regarding sales price, making for rapid turnover of sales people and suspicious buyers, and many client complaints throughout the construction period. Needless to say, the cost of building the homes (which was, of course, passed onto the customer) also increased.

The firm's relative success was due to the fact that it was small enough to eventually determine what a customer wanted, as well as the fact that its competition in its geographical area was no better. However, this firm's growth is hampered by a mismatch of its strategy and its organizational structure.

In contrast, a truck parts firm divided its customers into three groups, from their "best" through to their "infrequent customer". They devoted a considerable amount of attention to what their "best customer"