There are only so many ways to design enterprise structure. The gravitational pull to greater complexity, and all the challenges that come with it, is powered by the need for new sources of growth in diverse geographic markets across multi-product divisions with increasingly demanding customers and consumers with lots of technology at their fingertips. (Galbraith, 2009). After working closely with over twenty large US and European-based global companies during the past ten years, we have concluded the problem is not in the fundamental design of these operating models. The challenge is ineffective and incomplete activation. Despite large-scale, well-funded change initiatives, sophisticated communication programs, and countless worldwide leadership summits, the hard work of bringing these complex organization designs to life often lacks focus or is not sustained over the three or more years that it typically takes to fully embed new ways of working.

As we look across the companies we have studied and worked with we see a common set of symptoms that indicate incomplete activation:

  • Excess layers and duplicated work make the organization slow and internally focused. Over time mid to large-cap companies tend to build in layers of organization. Over-reliance on structure and hierarchy to coordinate and control work not only adds cost, but also makes organizations slow and internally focused. Collaboration (both internal and external) is easier with fewer organizational levels, where each level plays a unique and value-adding role. While hierarchy is likely to continue to play a role in future organization models, it must be simplified, and more emphasis on horizontal connections.
  • Global product teams and functions are overlaid onto the existing regional (commercial) organizations without adjustments in legacy P&L structures, creating unproductive friction. Companies do not become more global just because they have added worldwide product and brand teams, or global functions and councils, to manage centrally driven growth strategies and programs. Rather, companies become truly global when they have carefully orchestrated relationships among global, regional, and local teams with strong, interactive partnerships. The business targets and processes they co-manage, and the nature of talent that staff these new roles, are all part of bringing global organization to life. Many companies eager to implement a new organization structure simply do not have the wisdom, patience, and discipline to change the larger system. Too often, new initiatives and profit and loss structures are layered in without redesign of the larger whole.
  • Power dynamics remain unresolved across global business units, regional teams and functional units. Power for purpose should define how decisions will be made in the connections between global businesses, global functions, and regional or local businesses. The design of a global operating model is not complete until these decision-making ground rules and forums are defined, and too many executive teams leave this guidance to chance or to the political forces that unfold among strong personalities in the company. Having said that, some companies believe decision rights can be simply spelled out in detail with RACI charts and the like. This is also a fallacy.
  • Global functions are designed to do yesterday’s work, often independently from the needs of the business (and businesses have low expectations for functions). No one knows for sure where the future of management is headed, but it’s clear that management teams must adapt to new ways of working, enabled by continuous waves of technology. The work of support and operating functions like finance, marketing, supply chain and human resources must change to leverage these technologies, and do so in a way that serves enterprise objectives, as well as the needs of individual businesses.
  • Leaders do not know how and are not motivated to work in a matrix – metrics and reward systems continue to reinforce lack of enterprise thinking. Uncertainty is unnerving for most of us. Big organizations have been designed to eliminate uncertainty, and generations of leaders have been trained to allocate resources where assets are certain to produce the greatest return. Hence, regardless of the structure the common complaint of “silo thinking.” But leaders who succeed in the global operating model demonstrate high degrees of learning agility, challenge existing business models, and co-lead growth strategies with partners in other parts of the world. They have grown up moving through jobs that take them across regions, cultures, functions, and business models. The metrics and reward systems in the company make it clear that this kind of collaboration is expected.
  • The corporate executive committee continues to act as a group of individual leaders, each focused entirely on their own business versus the needs of the enterprise. The top executive teams in successful global companies spend time together, sharing the enterprise leadership role. When the sole focus of top leaders is on their own business results the message is clear to those who look up to them, and subtle or not-so-subtle forms of internal competition prevail. This is an often ignored element in activating the new organization

In short, it’s one thing to design global business units, regional operating units, and worldwide functions; it’s quite another to figure out how to get them to interact effectively to serve consumers and customers profitably.

 

Amy Kates & Greg Kesler
Managing Partners