Best Practices

Best Practices


Organization structure is merely a means to an end. Its purpose is to facilitate effective decision-making and administration. I dont think in any company there is one optimum way to organize – but you do need to ensure that your organization structure is working for you and not against you.

Chances are, regardless of your company size, that youre organized into some kind of functional structure which probably has been inherited from previous generation(s). Maybe it is time to take a critical look and ensure it is appropriate for your current business reality. The good news for smaller companies is that you should have more flexibility to modify your structure without too-excessive red tape.

In your review, I suggest you:

Evaluate the number of functions and layers. Here it is useful to think about span of control. Say that you typically want around seven people directly reporting to a manager. This is a rule of thumb rather than a doctrine; the purpose of this guideline is to ensure that the organization isnt overstaffed and top-heavy with management, nor are you overburdening your managers with too much administrative work to function effectively. Keep in mind that if you have jobs which are heavy strategy/thinking jobs, then a lower span of control could be in order, whilst those jobs that are more execution-oriented can handle a higher span of control. Also, regardless of the content of the job, your managers should be doing performance appraisal and coaching. So my advice is to limit direct reports to a maximum of 10; beyond that it is hard for managers to engage sufficiently with their people.

If you are a smaller company, and if people are mostly co-located, this may allow a higher span of control to be practical. In my years of experience I have more frequently seen examples of low span of control, which is an opportunity to reduce costs as well as increase the content and potentially the level of satisfaction in the job.

Ensure sufficient autonomy of functions. Managers of functions should have a significant amount of decision-making that they can do autonomously within their area, plus some portion of their decision-making that they need to do in consultation with other functions. Of course it should always be clear as to who has the final say on the decision, and who should be involved in the process. Some companies do this by using RASCI charts, which clearly lay out who on the team is expected to be responsible, accountable, supportive, consulted or informed. I have found these useful when setting up new structures or for changing a flawed decision model, but in the end you want decision-making to be driven by people who understand the issues and who can adapt to any model according to the urgency and importance of the decision itself.

The outcome of a good functional design should be some level of tension between functions on the biggest issues, yet smooth running and efficient, data based decision-making on the everyday issues. If you have some functions within your company which seem to take all the decisions, and others feeling like they have no decision power, I suggest you relook at your structure or your decision-making protocols – or both.

One example of an everyday issue which needs to run smoothly and efficiently is that of specific customer pricing. In my experience, it is useful to give sales the everyday pricing decision, but within certain price or margin latitude levels. At one point in my career when I worked as a sales manager, all pricing decisions had to go to a product-line manager at headquarters. This created a bottleneck in decision-making, underutilized the sales force, and overloaded the central function. Together, such inefficiencies reduced the time available to deal with longer-term marketing strategy.

Align functions with strategy. In an earlier column about establishing your three-year business strategy, I observed that this in essence is a series of choices you will make, with associated action plans and expected outcomes. It is important that the managers of each function are able to identify clearly their role in executing the strategy. It is also important that they have some control over their allocation of resources. In my experience, a misalignment between functions on how much resource is necessary to execute the strategy is what leads to friction, and potentially to failure.

Consider separating the strategic/long-term from the action/short-term functions. It is human nature to pay attention to the more urgent needs, and put off the consideration of the long-term but critically important things. By separating them youll have a better chance of getting both addressed on a regular basis. In an organization that I once led, for example, responsibility for long-term facilities planning and regular manufacturing operations were combined under a single manager; with all the pressure of operations, it was no surprise that the facilities long-term work got shortchanged. I split these responsibilities apart, which resulted in better planning of the long-term capital needs and opportunities. These different types of work may also benefit from different skill sets.

Identify decision or process gaps. This may be the hardest thing to do but has the potential to yield new insights. You need to find those decisions, processes or evaluations which are just not being done by anyone, but represent important opportunities for improvement and may require organization change to accomplish. How do you find them? Some ideas:

Trust your instincts. You may have a gut feel already that something is missing.

Keep an eye on the business journals. Ask your organization how they do some process or analysis that youve read about and that seems pertinent to your business.

Look at the key performance indicators that you track for your business. Which ones need the most improvement? Focus on those and on the decision processes which underlie the indicators.

Look at your competitors. What are they focusing on that is different? Of course you dont want to blindly follow them, but you should make sure you have good reasons why you are not addressing any big areas of competitor focus.

So, how often should you review your organization structure? I would say it should be at least every two years in a stable business and company environment. However it is also a good idea to evaluate both the organization structure and the people in it when you are new to an organization and have the best chance of bringing fresh ideas to the table.

It is also advisable to review the structure when embarking on a new strategy or major initiative, as this may be a time to shift resources from one area to another or to establish some new positions to better focus on the new objectives.

As you reflect on your organization you should also think about whether the issues or gaps that you see are due to the structure or to the people or the processes that are in place. It may be that you can accomplish the change you want by modifying business processes or people within the existing organization structure.

Finally give some thought to the ways in which the functions interact, and bridge the space between them. Any organization structure creates some gaps which need to be bridged via cross-functional teams or at least regular face-to-face meetings.

Sara Lefcourt of Lefcourt Consulting LLC specializes in helping companies to improve profits, reduce risk and step up their operations. Her experience includes many years in marketing, sales and procurement, first for Exxon and then at Infineum, where she was vice president, supply. E-mail her at or phone (908) 400-5210.

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