Chief executives often believe that changing the organizational design of their businesses will produce better performance. But a Bain study of more than 50 reorganizations found that most had no significant effect on performance.
There's a reason for this disconnect. The chief determinant of an organization's performance is its ability to make and execute its key decisions. Most organizational changes—implemented without consideration of those decisions—don't change what needs to be changed. And many organizational issues can be resolved by diagnosing and fixing decision difficulties, without the trouble and expense of an organizational restructuring.
But sometimes organizational structure really does impede good decision making and execution, and a new organizational design is necessary. The key then is to launch a decision-driven reorganization. Companies that have done so have learned the importance of the following six lessons:
- Identify your organization's key decisions. These will include major strategic decisions made in the C-suite and the boardroom and some of the everyday operating decisions made on or near the frontline.
- Determine where in the organization those decisions need to be made. Some decisions are easy to place–major capital investments, for instance, usually belong with the corporate center–but some require an assessment of trade-offs.
- Structure the company around its sources of value. If different customer segments require different kinds of decisions, for example, you may want to structure the company around those segments.
- Figure out the level of authority your decision makers need, and give it to them–regardless of their organizational status.
- Adjust other parts of your organizational system as necessary. A change in organizational structure may require changes in decision roles, incentives and the like.
- Equip your managers to make decisions quickly and well. Smart companies ensure that people have the skills required to make and execute good decisions.