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Poor Organisational Structures Affect Performance

Editorial Team
14/06/2018 9:30 AM

People say structure follows the strategy and that is true. You should leverage your organisational structure to deliver on your strategy. In practice, though strategies change more frequently, organisations are rarely structured to follow the strategic priorities of the business. Most structures we see in practice are meant to serve the personal interests of executives instead of serving the interests of the business.

So why worry about structures? You should worry about structures because they are used to structure authority, accountability and how decisions will be made in your business. Structures establish a clear chain of command organisational structures help establish a clear chain of command and dictate reporting lines. When developing your structures, there are certain issues that you need to deal with to make your structure more efficient.

One on one reporting – try to avoid one-on-one reporting relationships. For example, you have a Chief Executive and an Assistant Chief Executive. In most cases, one of them is not needed and it is normally done for political reasons than to serve the interest of the business. The trend now is to avoid such relationships at all. The Harvard Business Review, for example, reports that the trend of having a Chief Operating Officer (one reporting relationship with the Chief Executive) is no longer popular as exemplified by the number of organisations removing this role from their structures. The reason is that where such roles exist there is likely to be conflict with the Chief Executive. The fight is normally over territory and decision-making.

How deep should your structure be? How many reporting levels from top to bottom? The trend nowadays is to have no more than five reporting levels from the bottom to the Chief Executive. That way you ensure the decisions are not delayed unnecessarily. Such a flattened structure ensures that people are empowered to make decisions. When you reduce the number of reporting levels, it means you are increasing the number of people reporting to a manager. I have heard other people complain that increasing the number of people reporting to a manager or Chief Executive makes it difficult to supervise them. That is not true because structure should never be taken as a tool for supervising people. The structure should be used as a tool to empower people to do their job without too much interference.

When you truly empower people to make decisions through your structure, your business will benefit. When people are empowered through your structure they make decisions quickly, and your customers and other stakeholders are served faster than in a hierarchical structure. The assumption I am making here is that you have the right and capable people in each role. Structures are constrained when you do not have capable people manning roles. In some instances, we institute restructuring of structures when the problem is not the structure but the lack of capacity in the people manning your roles. When you do your organisation structure review, you may benefit from doing a review of the individual capability of the people as well.

Others have argued against flattening the structures, especially at the top, because they fear that their powers will be diluted. It has nothing to do with the business but power preservation. You can have as many as over 10 direct reports to the Chief Executive or even more. It is reported that Tim Cook the CEO of Apple, for example, has 17 direct reports. You should remember that the people reporting to the Chief Executive have nothing to do with hierarchy. You can have a middle manager who is not a Director reporting to the Chief Executive for the reason that they are handling a crucial area in line with your strategy for that period. Do not equate reporting to grading as seen in grading structures. It is also wrong to assume that because you are reporting to a senior person you must have a grade closer to the grade of the senior person.

Good structures allow you to clean up all areas where there is an unnecessary duplication of work by different roles. Duplication of work by various people costs you money and time. You lose value when people duplicate the same roles. You also pay people for no extra value being created. On top of the agenda for reviewing organisational structures should be to look for areas where there is duplication of work and clean it.

To some people, structure signifies an opportunity to build a power base, hence the need to look out for such people as you structure your organisation. Distinguish between operational managers and specialists who may be important but are not true managers (because they do not or should not have subordinates). You also need to check what percentage of your staff are in support functions versus those in core business or operation functions. A wrong mix is an indicator of faulty structures. Achieve the best balance between functional support jobs and operational jobs, avoiding duplication. It may be necessary to consider shared services as a way to deal with redundant capacity that exists within support functions in most cases.

One of the reasons why organisations end up with overblown structures is most managers think that business problems can be solved by adding more human capacity or roles. With a careful review of your structures, you may find that you are served well by having a lean structure that is not heavy on costs.

The issue of accountability in organisation structures is very important. Give accountability to the people close to the action. Traditional and rigid structures tend to give accountability to people very far away from the action. People who rarely understand or are poorly informed about what is happening on the ground. In the process, they end up making strange decisions that surprise the employees close to the action and the customers they are meant to serve.

Editorial Team

This article was written by one of the consultants at IPC

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