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.
Failure of an
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.
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.
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
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.
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,
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’
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.
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. 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.
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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