Scaling Down Multi-Company Corporate Structures

Why good organizations don't guarantee success, and sub optimal organizations can still deliver....

Almost every study on reorganization suggests that there is an efficiency loss for at least six month, and often well more than a year.  While you can evaluate how the transition is progressing relatively quickly, you cannot determine if the overall new structure is indeed superior to the former for more than a year.   Another note is that the reduced efficiency starts the moment that rumors of the change emerge and that the 6 month period needed for stabilization only starts when the org changes stop.  In far too many companies, managers hope to minimize the transition by announcing the plan well in advance.  They also hope to improve the results by making a "mid course correction".  Both are hugely damaging since they extend the inefficiency window. As a result, a reorganization is a major commitment for several years to come and managers need to take into consideration their ability to provide this critical settling period before they even open the discussion of change.

The cost of getting software into the hands of customers is typically 2 to 4 times more than the cost of developing the software...

During the current economic downturn, governments have looked to stimulate the economy, and have shown particular emphasis on the small businesses that are seen as the engine for creating jobs.  One common stimulus has been to promote new software and other technology R&D efforts that create Intellectual Property (IP).  From my way of thinking, they have it wrong in their stimulus target.  Many small businesses are able to create software IP through "sweat equity", that is, labor that not directly compensated.  The cost of licenses and hardware need to create the software is usually very small and the typical small business entrepreneurs invest their time while remaining in their home offices close to family and friends.

Unfortunately, after making the sacrifice required to create the product, many of these entrepreneurs then face the very sad fact that this software development effort is usually only a quarter of the total cost of getting the product to the final consumer.  (Don't believe me?  Look at annual reports of software companies and software divisions of publicly traded companies to see where their costs are: R&D is typically 15-35% of total revenue.)  Continue reading...

There is the right way, the wrong way, and the new company's way....

Many years ago, a company I worked for was purchased by another company and then that company was purchased by Honeywell a year later .  One of my new colleagues (from the acquiring company of a year previous) explained the three rules of an acquisition:

Rule 1: Don't forget who bought who.

Rule 2: There is no such thing as a merger.  Refer to Rule 1.

Rule 3: Don't forget rules 1 & 2.

I have been through numerous acquisitions since -- from both the buying side and selling side -- and these three rules have served me well

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

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.