COVID, the breakdown of supply chains and the global economic slowdown have changed in many cases how organisations ‘do work’. These inevitably impact a company’s operating model.
Over the last month we have been asked the same question by multiple clients:
“We need to restructure our organisation, but we are not sure how to do it.
We know the organizational structure needs to change, but the key stakeholders are not aligned, and the last thing we need is an arm wrestle between executives.
The CEO could just impose a new structure without consultation, but this would create friction, and the buy-in of the executives is important.
So, we need help, do you have any recommendations?”
Our answer: “Yes, but don’t talk about organisational structure, talk first about decisions and required changes to structure and other aspects of the operating model will then become obvious.”
For this article we define decisions as a commitment that results in ‘doing work’ or taking an agreed set of actions.
We define decision rights as the person responsible for deciding – the person accountable.
Decisions often require multiple inputs from many people; however, there should only ever be one person accountable for deciding. This is critical. Shared accountability means no accountability.
The decision-maker should also have the knowledge, experience, and information to decide the best course of action.
Decisions sit at the heart of any operating model. Debating where a decision could be made in an organizations value chain is less likely to become emotive than debating structure.
Decisions, drive capabilities. Assessing if the capabilities required to support a decision are better or worse in different options makes it apparent if the structure needs to be changed or not.
Let’s use an hospital as an example: hospitals have worked out that the best way to serve their patients is to group decision rights into logically related groups – we know them as medical departments. For example, the Emergency Department makes decisions on how to treat urgent health problems. Similarly, the labour ward makes decisions relating to care for women and their children during childbirth. Once you map capabilities then structure naturally falls into place.
WHAT PROMPTS STRUCTURE CHANGE?
As companies respond to market changes and improvements in technology, an organization’s operating model naturally responds, and structure inevitably should change too.
Sometimes structural change itself is used as the vehicle to drive change rather than in response to it. Regardless of whether the discussion is in response to change, or to drive it, the best way to talk about structure is to go to first principles: talk about decisions!
 Decision rights can be further broken down as per the military command authorities, Bain & Company RAPID or McKinsey RASCI models.
RESTRUCTURING FOR DECISIONS – STEPS TO FOLLOW
Before commencing structure workshops, it is vital to agree on the process and criteria for assessing the different options. This ensures buy-in and sets the conditions for productive discussions. The preeminent criteria may be stated as follows: “Who has the most timely and accurate information to make decisions?”
STEP 1 – Create options where decisions could sit in the value chain. This involves determining where key decisions could sit in the value chain. It is also very important in this stage to explore different options and the opportunities and risks associated with each option.
Understanding how information flows between levels within the company is also critical to this activity. For example, in a centralised structure, information collected to create a system wide view flows from the top down; while in a decentralised structure, information is distributed among various levels of the organization.
Once again, using a hospital as an example the decision to manage patient flow could sit in a centralised operations hub or decentralised in the wards. It would be important to explore both options and even hybrid options in this example.
STEP 2 – The next step is to determine what capabilities (people, process, and technology) are required to support each decision.
Using our example, a hospital with a centralised operations centre would require people, systems and processes in one location with technology that is able to collect and analyze information from various sources into one place. It also requires the ability to communicate decisions to the wards.
A decentralised model in this example would require the people, systems and processes to be in the wards with the ability to collaborate seamlessly between each ward.
Critically, the process of exploring the opportunities and risks of mapping capabilities for different options almost always highlights the optimal option.
STEP 3 – The final step is to agree the structure. If you have followed the previous two steps then this is probably the simplest of the steps and involves linking the capability bricks (in the previous steps) with reporting lines. Given most organisations already have established reporting lines this is usually an intuitive and relatively simple activity.
Centralised versus Decentralised
The most frequent debates are when there is conjecture whether a decision should be centralised or decentralised.
Historically, decisions were better made in a decentralised manner because the information was also decentralised. It therefore made sense for the decider to be at ‘the coal face’. With changes in technology it is now possible for the same or better-quality information to be captured centrally. The ability to gain a system wide view has huge implications for optimization and cost savings. It is not uncommon for sub-optimal hybrid models to be implemented when a centralised system is first introduced. Typically, this is because powerful individuals don’t want to relinquish their decision rights. Similarly, the reverse can also be true where a centralised model can be imposed too early and without the necessary capabilities to support appropriate information flow.
In the hospital example an operations hub with a centralised model would control all decisions to do with patient flow and sit above or alongside the departments. A decentralised model would have capabilities dispersed within the wards and collaborate with each other to manage patient flow between the wards. The criteria that should determine the optimal structure should be: under which model does the decider have more relevant and timely information?