How to Structure Your Company
by Dr. Ichak Adizes (Ichak.Adizes@ManagementVitality.com)
An organization needs a complementary team to be
well managed (that is to be effective and efficient
in the short and long run) because one person cannot
simultaneously focus on all these priorities at the
same time. In other words, the perfect textbook manager
does not exist who can simultaneously be a strategic
thinker, who can focus on long-term results, who can
be a great organizer who pays attention to details
and who can also focus on immediate results. This
manager does not exist. An organization needs a complementary
team.
Camels in Polar Bear Skins
A complementary team will not necessarily emerge
by itself organically. Let me tell you a story that
will illustrate this point. Many years ago, when my
children were very young, I bought my son a globe.
He came to me and said, "Daddy, why is the globe tilted."
I wondered, if the globe did not have a horizontal
and vertical tilt, what would we lose? We would loose
the seasons! The whole world would have the weather
of the North Pole year round. If this were actually
the case, which animals would be the ones to survive?
We know it would only be the polar bears. If by mistake
a camel wandered to the North Pole, it would have
several choices, 1. Die, 2. Get out if you can 3.
Adapt to the environment. And this is what happens
in many bureaucratic organizations-- it looks like
all are bureaucrats. But beware; some of them may
be camels in polar bear skins. In other words, they
learned to adapt to their environment. So the whole
organization is behaving in a bureaucratic manner,
although the components that comprise it, the people,
are not necessarily bureaucratic.
Take, for example, Russia. During the communist regime
the whole country looked bureaucratic because being
an economic entrepreneur would be dangerous. But as
soon as communism came down, there were a lot of business
people around because the people are entrepreneurial,
they just couldn't express it. So what do these examples
illustrate? In order to have a complementary team,
it is not enough to have complementary styles because
those styles will adapt themselves to the environment
in which they live.
Tilt the Globe
In order to have complementary teams, we must have
a complementary structure (environments) where those
styles can thrive. You have to tilt the globe to have
different climates so you can have an organizational
ecology. You have to establish a system whereby these
different styles and different climates do not trap
each other; they live in peace (a climate of mutual
trust and respect,) to achieve the wholeness and diversity
that the organization needs not in spite of their
differences but because of their differences. How
do you build a complementary structure?
In any organization, there must be a task or responsibility
for producing results - the reason why the organization
exists. This usually is the sales organization and
the production and manufacturing organization. There
must also be an entrepreneurial task or responsibility
for producing change. This is usually the marketing
task, new product development, engineering, and R&D
tasks. Now beware how you structure these divisions.
You should not have the entrepreneurial and production
tasks mingled. We already discussed in the last newsletter
that those roles are incompatible. If you mingle them
under a single vice president, then one of those roles
is in danger. For example, if you have a VP of sales
and marketing, marketing is in danger. Usually marketing
does not exist except in name only. In reality, it
is usually only a sales support function where the
department analyzes sales in terms of sales goals
and how the customers reacted to a sales campaign.
The marketing department does not induce change; it
supports the sales activities.
The same is true with production and R&D. When they
are together, engineering usually ends up in maintenance
instead of changing the technology. By the same token,
you should not have the audit (controlling) function
and consulting (entrepreneurial) functions mixed.
That was the fatal mistake that Arthur Andersen made.
Consulting is trying to induce change, auditing needs
to document and reveal the impact of those changes.
Inherently there is a conflict of interest, especially
since consulting makes a lot more money. Auditing
is then threatened. Auditing will not provide the
breaks, balance, or the controlling function for an
organization to know where it is. Enron made the same
mistake by giving the CFO the treasury function and
the chief accounting function. This gives the CFO
far too much power, and it also monopolizes all information
into one department. Anyone who disagrees is a whistleblower.
This makes the CEO practically a prisoner of the situation
because he does not know what is going on. He only
gets his information from one source that controls
both functions.
The Sales and Marketing VP has all the information
about what is happening in the markets so the CEO
has to depend on that single individual for all of
his information on clients and markets. The Manufacturing
and R&D VP, if his responsibility also includes Engineering,
has all of the information about what is happening
on the inside of the organization. The CFO has a total
monopoly on all financial matters. The CEO in this
type of a structure will not know what is going on.
Maintain Two Points of Reference
We know from logic that if you want to know what
is going on, you must always have two points of reference.
Thus, a well-managed organization must separate marketing
from sales, must separate production from R&D, and
must separate accounting from finance. If you separate
these functions, then the CEO will have two points
of reference of the markets, of production and R&D,
and two points of reference on the financial aspects.
By the same token, I strongly recommend that the HR
Development department and HR Administration department
be split. By and large, when both departments are
put into a single vice-president, the HR Development
department is the endangered species; the name exists
but the function, in reality, does not.
Marketing and Sales, Production and Engineering and
R&D, and Finance and Accounting, have always been
in conflict. This is a desirable conflict because
when there is such a conflict, information surfaces.
Thus, the CEO has better information and knowledge
and can make better decisions balancing between the
long (entrepreneurial) and short (production) orientations.
By looking at both sides, he can optimize which way
the company should act. When there is a unification
of these two functions within a single vice-president,
what you get is a silo effect, each one monopolizes
a certain aspect of the organization, and the totality
is not optimized, which is the role that the CEO has
to perform.
As we see from above, there should be at least eight
divisions reporting to the CEO. When there is a large
company, then there are even more roles that report
to the CEO because there are more functions such as
safety, quality and reliability. If you need to unite
a number of functions in order to decrease the span
of control of one person, don't unite by function
like sales and marketing together, or a Chief Financial
Administrative Officer with HR, Finance, Accounting,
and Information Technology. Unite by roles, the purpose
of existence. Have marketing, engineering, HR development,
and finance -under a Senior Vice President for long-run
development. Have an Executive Vice President or COO
in charge of short-run results that would encompass
production, sales, and operations. Then have a Staff
Vice President in charge of administration and support
functions such as Controllers, Human resources Administration,
IT, Legal etc.
If an organization is structured correctly, then complementary
styles can survive. If there is a good process for
decision-making, and it is taking place in an environment
of mutual trust and respect, then the complementary
styles can work together with constructive conflict,
which is necessary for a well-managed company.
©
Copyright 2002 by Ichak Adizes and the Adizes Institute
LLC. Reprinted with permission by ManagementVitality.
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