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Corporate Organizations

05.04.2010

There are 3 basic organizational structures– each flawed in some way

Organization Structure

In almost every political campaign, the opponent runs on the theme that they can successfully attack the huge waste, fraud, and abuse that exists everywhere in the government. Many will even have some facts showing how great this problem is, yet even after multiple successive new governments with this as a priority, the improvement is marginal at best.  This is not conspiracy, but the symptom of a very hard problem that does not have an easy answer.

In my business world, I see two similar paradoxical hard problems that the simple answer never provides a meaningful solution.  The first is sales cross-selling and the second is the re-use of designs (aka IPR management). Combine these two with the ever-present general corporate waste through communication barriers and you have the three justifications we typically see used for most every corporate reorganization.  You also have the reason why almost no reorganization can solve the hard problems.

I see basically three flavors of business organization supporting the complementary functions of operations/delivery and sales/business development: Operations can lead, Sales can lead, or a Matrix Lead where there is a balance of power with the two.  To illustrate these three main types, I have created a distilled form and tried to reference a company that instills these behaviors.
1. Operations Lead: HP has long been a strong engineering-driven company. As a consequence, the product (e.g. printers or software) have typically been developed first with sales and marketing applied later. As a result, each business element has a global profit and loss (aka profit center) responsibility. Local sales offices host sales and marketing activities that are principally driven from a central sales and marketing office.  This then leads to a sales and marketing that behaves as an independent cost center and must offer their services to the internal business units (Operations & profit centers). Such organizations most often occur where delivery management is stronger than sales management. As a consequence to the structure, IPR management is usually institutionalized and well managed, but sales cross-selling is usually the more difficult problem to address.
2. Sales Lead: Accenture has always valued their close relationships with clients.  Their genesis is a partner structure (Anderson Consulting) where each partner had a near independent business.  Ability to “make rain” (successful selling) is one of the key criteria to becoming a partner and is a strong element of their corporate culture.  As a consequence, the firm is typically quite adept at offering a broad range of client solutions as key a part of their basic business practices.  On the down side, local offices will often repeat a solution done by another Accenture office without having the benefit of their experiences.  In fact, their high focus on the individual client needs often means that Accenture can repeat a similar project with the same team and still have limited efficiency improvements when applied to the second client.  In this organization, cross selling is institutionalized and effective, while IPR management is weaker.  To minimize some of these weaknesses they attempt to overlay establish standard methodologies as a way of providing similar client solutions in other business units and they continually move staff from team to team as a way of sharing experience.
3. Matrix Lead:  Ericcson Network Equipment is an example of a group of mutually independent organizations where operations and sales each are free to maximize their value to the larger organization.  Ericcson operations cuts deals with multinational players that directly compete with the Ericcson regional sales and delivery offices.  Likewise, the sales offices may work with a local supplier’s product that is less expensive than Ericcson’s own product.  Potentially this is a superior organization structure since it balances the two priorities, but it is naturally unstable and requires substantial management intervention to keep this balance exactly equal.  (see balance of power).

Sometimes reorganizations are necessary.  For example, most start-up software product companies start with all the smart people and all the best staff as engineers.  However, as the business matures, most software product companies will spend at least twice as much on sales and marketing as they do on engineering – the consequence is that a product company must transition from an engineering-driven to a sales-driven company.  Without sabotaging the necessary new authority granted to the sales and marketing teams, these restructured organizations must find new ways to maintain engineering efficiency.  Keeping institutions that work across regions is likely the key.  Likewise when transitioning in the other direction from regional/sales to centralized/operational business units, it is critical that sales and marketing have opportunities to learn from each other and/or assist each other in cross selling.

What happens when we transition the structure will be for another day….

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