Greg Kesler and Amy Kates
Portfolio.com, December 2010
General managers of major operating units at Nike, P&G, Cisco, Tyco, Whirlpool and others are using organization design to create competitive advantage. These companies are also known for their outsized talent pools, but when great talent is channeled through well‐aligned organization, magic is possible, and it is a very difficult sauce to copy.
Good organization design leads to competitive advantage when it’s clear what the organization has to do very well to drive the strategy. And there are always trade‐offs. Specialization, for example, delivers strong functional excellence and cost effectiveness, but usually creates silos that can be difficult to integrate. Organization design is core work for leaders today, and it helps to learn a few simple frameworks.
We use a model in our practice that outlines six ways that a given organization can help bring competitive advantage to a business. You can’t have all six at one time – and each of the six is more or less useful, depending on your strategy. Let’s go through each of them.
1. Management Attention to the Right Things
At Johnson & Johnson, the quality function reports to the CEO today for reasons that are clear to anyone who’s followed business news. The same thing can be said for the safety, health and environment function at BP. This is the simplest way to make something a priority – to elevate it in the structure. Today, growth is critical to all businesses and many, like Tyco, are elevating emerging market leaders who run China or Brazil to sit at the executive table. Others, like Cisco, are separating out new product incubators in an effort to provide special focus for potential orphans. Management attention may also show up as a functional czar for a process, such as brand marketing or supply chain management that has been weak or missing in the past.
2. Leveraged Resources and Cost
Economies of scale are table stakes in many businesses, and potential sources of competitive advantage in others. Unless the organization is a true holding company, where there is no strategic reason to connect the operating units, most companies today are looking for smart ways to consolidate activities to bring efficiency to them. In many companies it’s about creating more cost headroom to allow more spending in new growth targets. Others look for a different kind of leverage – bringing together product‐development organizations in order to deliver fewer, bigger bets into the market. Consolidating product development across regions can also be a path to globalizing products.
3. More Coordination and Integration
Some organization designs are focused on maximizing the amount of integration across functions, businesses or regions. Product development today moves faster when functions are tied together into consumer‐aligned teams. When customer intimacy really matters coordination across country‐based sales teams or across businesses is often the target. There are matrix structures that are specifically designed to deliver this kind of coordination. Shared metrics, aligned pay programs and horizontal business processes are all tools to help drive more integration.