10 Principles of Organization Design
A global electronics manufacturer seemed to live in a perpetual state of re-organization. Introducing a new line of communication devices for the Asian market required reorienting its sales, marketing, and support functions. Migrating to cloud-based business applications called for changes to the IT organization. Altogether, it had reorganized six times in 10 years.
Suddenly, however, the company found itself facing a different challenge. Because of the new technologies that had entered its category, and a sea change in customer expectations, the CEO decided to shift from a product-based business model to a customer-centric one. That meant yet another reorganization, but this one would be different. It had to go beyond shifting the lines and boxes in an org chart. It would have to change the company’s most fundamental building blocks: how people in the company made decisions, adopted new behaviors, rewarded performance, agreed on commitments, managed information, made sense of that information, allocated responsibility, and connected with one another. Not only did the leadership team lack a full-fledged blueprint — they didn’t know where to begin.
This situation is becoming more typical. In the 18th annual PwC survey of chief executive officers, conducted in 2014, many CEOs anticipated significant disruptions to their businesses during the next five years as a result of global trends. One such trend, cited by 61 percent of the respondents, was heightened competition. The same proportion of respondents foresaw changes in customer behavior creating disruption. Fifty percent said they expected changes in distribution channels. As CEOs look to stay ahead of these trends, they recognize the need to change their organization’s design. But for that redesign to succeed, a company must make its changes as effectively and painlessly as possible, in a way that aligns with its strategy, invigorates employees, builds distinctive capabilities, and makes it easier to attract customers.
Today, the average tenure for the CEO of a global company is about five years. Therefore, a major re-organization is likely to happen only once during that leader’s term. The chief executive has to get the reorg right the first time; he or she won’t get a second chance.