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Success and failure in Organisation Design

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Success and failure in Organisation Design

  1. 1. Success and Failure SIT DOLOR AMET
  2. 2. Abstract Organizations fail due to incentive problems (agents do not want to act in the organization's interests) and bounded rationality problems (agents do not have the necessary information to do so). This survey uses recent advances in organizational economics to illuminate organizational failures along these two dimensions. We combine reviews of the literature with simple models and case discussions. Specifically, we consider failures related to short-termism and the allocation of authority, both of which are instances of "multitasking problems"; communication failures in the presence of both soft and hard information due to incentive misalignments; resistance to change due to vested interests and nigh cultures; and failures related to the allocation of talent and miscommunication due to bounded rationality. We find that the organizational economics literature provides parsimonious explanations for a large range of economically significant failures.
  3. 3. How to Evaluate the Success or Failure of an Organization Surveys You should perform customer surveys from time to time. You can do this by mailing out postcards, asking customers directly or sending surveys through email. Listen to what your customers have to say about how well you are serving them. While it is possible to have good customer service and not make a profit, it is nearly impossible to have bad customer service and make a profit. Ask for honesty from your customers so you will know how they measure your success or failure. Ask Your Stakeholders Stakeholders are the people who have an interest in how your business is doing. This includes employees, managers, lenders, vendors, investors and contractors. Ask your stakeholders what their perceptions are about how well the business is doing. Lenders will certainly tell you if they see financial problems lurking, and vendors will give you an honest appraisal of what they see in your dealings with them. Some of this feedback may be only perception and not reality, but perception can become reality if you are giving the impression you are not doing well. At the very least, asking your stakeholders for feedback will tell you if you need to improve your public relations. Evaluate the Evidence Don't overlook hard numbers. You are either paying the bills or you are not; you are either making a profit or you are not, and you are meeting your payroll or you are not. Your accountant deals with facts, so have a factual conversation with your accountant about your finances, cash flow and credit worthiness. Numbers will not tell the whole story regarding your success, but they can point out where you are doing well and where you are failing. Prioritize Once you have devised several ways to evaluate your success or failure, prioritize those methods. If you are a startup business and don't expect to make a profit for a year or so, numbers may not be your highest priority. If, however, your are already profitable but you see your numbers slipping, you may make customer feedback your priority. Prioritize and customize your evaluation methods based on your future goals and your present situation.
  4. 4. Cycles of Failure and Cycles of Success
  5. 5. Neuroscience Impacts Organization al Change Efforts. Jacob Shriar explains: “As soon as something new happens, our brains automatically start trying to compare it with previous things we already know and are familiar with. This process of comparing the two actually uses up a lot of energy in the brain.” This mental fatigue can then increase our fear. No wonder we groan and internally panic and want to ignore organizational change. You can see why this intrinsic reaction and automatic and unconscious resistance presents challenges to organizational change. Imagine trying to corral a large number of people, all of whom have a hard-wired resistance to change, as well as different aspirations, motivation, levels of expertise and experience, learning styles, and personalities. No wonder building commitment to change is so challenging. But the challenges don’t stop there
  6. 6. Key Success & Failure Factors
  7. 7. Reasons Organizational Change Fails… or Succeeds
  8. 8. 17 Reasons Organization al Change Fails… or Succeeds What’s behind the struggle to change? We’ve found 10 common themes, or reasons organization change fails. The good good news is that they work in reverse, too. Done well, these can be the 10 reasons change succeeds in your organization. In no particular order: 1. Clear performance focus Success comes from a tight, clear connection between change expectations and business results. Failures come when an organization is overly focused on activities, skills and culture, or structural changes without creating a tight linkage linkage to business results. 2. A winning strategy Projects & organizations succeed when the strategies play to strengths. Failure happens when there is an overestimation of strength(s) and/or no ability to document concrete ‘wins.’ 3. A compelling and urgent case for change Success happens because there is a widely accepted ‘felt’ need for change. Failure occurs when there is no demonstrated commitment to the need for change. There is no clear ‘pain’ for remaining in the status quo.
  9. 9. Learning from Failure Learning from Failure
  10. 10. 17 Reasons Organization al Change Fails… or Succeeds 4. Specific change criteria In successful efforts, the underlying performance criteria and change requirements are clear, documented and not negotiable. If the ‘rules’ shift or evolve or can be negotiated, failure follows. 5. Distinction between decision-driven and behavior-dependent change Some change can be ‘decided’ – restructuring, purchases, hires/fires, etc. Other change is is ‘behavior-dependent’ – skills development, new processes, implementing new accountabilities, etc. Organizations that over ‘decide’ and underinvest in ‘behavior’ changes fail. 6. Structure and systems requirements Structure and systems (particularly IT) changes may be required for change but are almost almost always overused as either the answer or the excuse. Overdependence on structure structure and systems results in confusion and sapped energy, and is a great technique for for stalling progress. 7. Appropriate skills and resources Successful change often demands new skills that are being created; requiring some level of transition resources until new skills are fully functional. Lack of the right talent (skills) and resources against an opportunity is certain failure; yet organizations consistently repeat this shortcoming.
  11. 11. Success or Failure
  12. 12. 17 Reasons Organization al Change Fails… or Succeeds 8. Mobilized and engaged pivotal groups Organizations that succeed tap critical internal influencers to champion the change and actively engage staff in driving driving the change. Getting beyond basic change rhetoric requires a compelling employee value proposition (“what’s (“what’s in this for me,”) achievable goals, tools and shared information. 9. Tight integration and alignment of all initiatives Major change inevitably requires dozens of initiatives (strategy projects, re-engineering efforts, training, leadership development, communications, technical redesign, new measurements, etc.). The result is a massive integration challenge. Failure results from locally and globally isolated projects, cross-project conflicts, resource competition, and and confusion as to how projects do or don’t relate. 10. Leader ability and willingness to change The ceiling on any attempt to change at the project, department or organization level is set at the leaders’ willingness willingness to embrace and embody the change. Whatever behaviors individual project or leader team members cannot adopt, become effectively impossible for the organization. 11. Not knowing what you are trying to achieve Before moving boxes and lines on an organization chart, it is important to know why you are doing the reorganization. reorganization. Is it a result of a merger, acquisition, or downsizing? Are you trying to reduce costs and improve efficiencies? Are you struggling with performance issues? Are there too many direct reports, which may be impeding both employee development and innovation? Is the reporting structure too complex? Clear guidelines that reflect what what the goals of the new organization are will help companies ensure that the redesigned organization will attain those stated goals. 12. Structuring an organization for specific personnel It is not uncommon for key people within an organization to have tremendous influence due to their tenure, expertise, or importance to certain client relationships. As a result, there is a risk that the preferences of the individual individual will become a priority during organization design rather than the objectives and requirements of the business. It is incredibly important to separate the organization design component from the actual selection of staff.
  13. 13. Failure Event chain
  14. 14. 17 Reasons Organization al Change Fails… or Succeeds 13. Causing more disruption than needed Scott Madden sometimes encounters clients who view reorganization as an opportunity to “clean house.” Although it is true that the need for change usually provides a good opportunity to also address other inefficiencies or problem areas, leaders should be cautious about causing more disruption than necessary. Drastic staffing cuts or process changes can result in reduced employee morale, the loss of valuable talent, stagnated innovation, and an overall distraction from the mission of the organization. 14. Making decisions and/or having sidebar agreements outside of the agreed-upon process A sidebar or supplemental agreement that compromises the documented, agreed-upon, communicated process threatens project success. These actions can open the door to additional exceptions to the organization design process and can result in an overall lack of trust in the organization’s leadership going forward. For example, management has set forth a process of evaluating and selecting for all reorganized positions. Two managers have a sidebar discussion in the hall that they really want “someone like Kim” in one one of the positions. Both managers agree and decide to put Kim in the position and determine who will backfill her in her current position, despite already communicating that the two positions will be posted and interviews will be conducted for final selection. While it may seem harmless at the time to make minor adjustments to the agreed-upon process, the act of doing so threatens the project by creating the justification for making larger exceptions later on in the process, process, as well as demonstrating to the end population that the process is not “fair.” 15. Skipping current state assessment Many organizations desire to jump directly to the organization design stage before conducting a detailed current state assessment (CSA) that includes current costs, volumes, and service levels of the organization. It is is imperative that a comprehensive CSA is completed prior to the design, as the design is dependent upon many of the metrics and standards that are established within the CSA. Gauging improvements in efficiency and/or performance from the redesign often depends on an organization’s ability to analyze and compare layers, spans, and cost-to-manage to standards. A CSA forms the basis for these and other analyses, without which decisions are not fully informed.
  15. 15. 17 Reasons Organization al Change Fails… or Succeeds 16. Breaking the circle of confidentiality It is incredibly important for participants involved in the redesign to keep project information inside the circle of confidentiality. Revealing too much too soon to those outside the “Circle of Trust” can threaten an organization’s level of engagement and overall productivity. The design of of a new organization structure brings with it new roles, responsibilities, and reporting relationships. These changes can encourage or discourage personnel, and therefore have the potential to threaten the effectiveness of the new structure. The performance of individuals or entire departments can be compromised if people think they will not have a job in the future organization, and this has a network effect on the rest of the organization. In addition, organizations may lose their most talented individuals who feel uncertain about their future within the new organization, while being highly sought after in the marketplace. 17. Bypassing a formal change management and communications plan It is essential that a formal plan is developed to support the communication of the right information at the right point in the process. Details about the new organization, along with details of the selection process, should be communicated as they are finalized to all levels of the the organization. This will help avoid surprise or confusion about the responsibilities and expectations during the change. If rumors conflict with formal communication during the process, the legitimacy of the organization will be jeopardized. Reorganizations can be highly successful ventures. However, by understanding what your main drivers are on the front end, whether you are promoting growth, cutting costs, changing culture, culture, or changing overall operations, you can ensure you achieve your goal of better performance. Avoiding Scott Madden's seven reasons for failure will help ensure your organization redesign is “done right.”

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