CEOs tend to believe that company structure is closely tied to performance, so it makes sense that nearly half of all CEOs reorganize their companies during their first two years on the job. But Marcia W. Blenko, Michael C. Mankins, and Paul Rogers of Bain & Company report that of 57 reorganizations they studied between 2000 and 2006, less than one-third saw significant performance improvement. This failure, they believe, is rooted in a misunderstanding about the link between structure and outcome. In truth, a company's structure only results in improved performance if it allows the firm to make key decisions better and faster than the competition. Making sure this is the case requires a shift in the way we manage organizational change. We must start with an audit of assets, capabilities, risks, and weaknesses and move toward a decision audit, in which the goal is to understand which set of decisions are key to the success of the company's strategy and at what organizational level they should be made. If there is alignment between structure and decisions, then the organization will work better and performance will improve. To reorganize around decisions, leaders should follow six steps: Identify their firm's key decisions, figure out where in the company those decisions should happen, organize the macrostructure based on sources of value, determine how much authority decision makers need, align the rest of the organizational system with that related to decision making, and help managers acquire the skills they need to make decisions quickly and well.
A new study identifies exactly how much bang for the buck a firm can get when it makes targeted cuts in back-office costs and takes steps to boost efficiency.
Decisions are the coin of the realm in business. But even in highly respected companies, decisions can get stuck inside the organization like loose change. As a result, the entire decision-making process can stall, usually at one of four bottlenecks: global vs. local, center vs. business unit, function vs. function, and inside vs. outside partners. Decision-making bottlenecks can occur whenever there is ambiguity or tension over who gets to decide what. For example, do marketers or product developers get to decide the features of a new product? Should a major capital investment depend on the approval of the business unit that will own it, or should headquarters make the final call? Which decisions can be delegated to an outsourcing partner, and which must be made internally? Bain consultants Paul Rogers and Marcia Blenko use an approach called RAPID (recommend, agree, perform, input, and decide) to help companies unclog their decision-making bottlenecks by explicitly defining roles and responsibilities. For example, British American Tobacco struck a new balance between global and local decision making to take advantage of the company's scale while maintaining its agility in local markets. At Wyeth Pharmaceuticals, a growth opportunity revealed the need to push more decisions down to the business units. And at the UK department-store chain John Lewis, buyers and sales staff clarified their decision roles to implement a new strategy for selling its salt and pepper mills. When revamping its decision-making process, a company must take some practical steps: Align decision roles with the most important sources of value, make sure that decisions are made by the right people at the right levels of the organization, and let the people who will live with the new process help design it.
The most successful private-equity firms regularly spearhead dramatic business transformations, creating exceptional returns for their investors. To understand how those firms do it, the authors studied more than 2,000 PE transactions over the past 10 years and discovered that the top performers' success stems from the rigor with which they manage their businesses. This article describes the 4 management disciplines vital to the success of the best PE firms. First, for each business, they define an investment thesis: a brief, clear statement of how to make the business more valuable within 3 to 5 years. The thesis, which guides all actions by the company, usually focuses on growth. PE firms know that the demonstration of a path to strong growth produces the big returns on investment. Second, they don't measure too much. They zero in on a few financial indicators that most clearly reveal the business's progress in increasing its value. They watch cash more closely than earnings and tailor performance measures to each business, rather than impose 1 set of measures across their entire portfolio. Third, they work their balance sheets, mining undervalued assets, turning fixed assets into sources of financing, and aggressively managing their physical capital. Last, they make the center the shareholder. Corporate staffs in PE firms make unsentimental investment decisions, buying and selling businesses when the price is right and bringing in new management when performance falters. These firms also keep their corporate centers extremely lean. By adopting these four disciplines, executives at public companies should be able to reap significantly greater returns from their own business units.