CHAPTER 6

Tools and conceptual models

In this chapter well be discussing a number of tools and conceptual models, both traditional and relati el! recent ones" #! tools and models we mean methods, processes, approaches and e$ercises, used indi iduall! or in groups, which aim to structure and de elop %nowledge" The tools and models presented here should be seen as a smorgasbord for inspiration in dealing with organi&ational factors" The! are, in alphabetical order' Elements of the business mission #enchlearning( )ecision*ma%ing Elimination of a le el The one*man band Customer anal!sis The +megaprocess, -odelling.process mapping /ero*base start E$ternal en ironment anal!sis 0rganigraph Performance criteria Problem anal!sis 1P)23

456

Tools and conceptual models

7air process 8hat can not be outsourced9 :alues and beha ior

Elements of the business mission

The business mission of a business describes its fundamental aim" 0utside the commercial sphere, the business mission is often called the operating concept and is simpl! what the organi&ation has to ac* complish" #usiness mission, or business concept, is often used b! both commercial and non*commercial businesses" A business mission should alwa!s start with the needs of cus* tomers or purchasers of a product" It is important to distinguish be* tween needs and demand" A need to satisf! ones hunger, for e$ample, can result in a demand for porridge, a fillet stea%, or fish, etc" A need for cold can result in a demand for ice, a fridge, or for a trip to more northerl! latitudes 1more southerl! ones for those in the 2outhern Hemisphere3" The last point was i idl! e$emplified b! the two companies, which at the beginning of the 4;55s were en* gaged in the business of sawing and deli ering ice" The business mission of one of them was to sell ice while that of the other was to sell cold" After the introduction of the refrigerator, one of the com* panies was left" <ou don=t need to be a genius to guess which one" This e$ample also sa!s something about defining core compe* tence" )eli ering ice was a pro>ect that embraced what for the time was ad anced logistics" Perhaps this competence could ha e been used in some other connection after the ad ent of the fridge9 8e ha e begun to loo% at important aspects underl!ing the business mission of a business" These can be summari&ed in the following fi e points" 4" ?eeds.demand 6" Customers.distributors @" 0ffering of goods and ser ices

#enchlearning(

45@

A" Core competence B" Competiti e edge An e$ercise we ha e found useful is to discuss all the parts of an organi&ation with the abo e factors in mind, when both depend* ence relationships and structural shortcomings in the organi&ation ma! be re ealed" A number of Cuestions ma! arise concerning the elements of the business mission' 8hat needs are satisfied b! the unit.department.di ision and what products.ser ices are called for internall! or e$ternall!9 8hat internal.e$ternal customers 1recei ers of goods or ser* ices3 does the unit.department.di ision ha e9 8hat products or ser ices are pro ided b! the unit.depart* ment.di ision9 8hat competence should be found in the department 1ignore ob ious h!giene factors in this discussion39 8hat should the unit.department.di ision be best at9 8hat competiti e edge does the unit.department.di ision ha e if it operates in the e$ternal mar%et9 #! s!stematicall! going through all the parts of an organi&ation along these lines, we might start an interesting discussion which, in our e$perience, could lead to man! an insight into organi&ational design" It might then turn out that we should concentrate a particu* lar %ind of competence in a particular section, or a ma%e a certain unit a candidate for outsourcing"

#enchlearning

It should be ob ious to all of us that we should learn from the e$* periences of others without oursel es ha ing to re*li e those e$peri* ences" Humans ha e de eloped faster than the animals because of this a$iom" 8e ha e been able to store and impart %nowledge and ha e thus created a chain of learning between different cultures and geographical areas o er time"

45A

Tools and conceptual models

#enchlearning was de eloped in 4;;A within DarlEf Consulting as a natural conseCuence of a long e$perience of benchmar%ing" #enchmar%ing largel! focuses on %e! ratios and processes" #ench* learning goes a couple of steps furtherF first, to causalit!, i"e" causal relationships, and then to organi&ational learning, that is, the in* sight of what is important for success in an organi&ation" 8hen thoughts of reorgani&ation first arise, perhaps we should first as% oursel es what the problem is, i"e" what was the s!mptom that called forth which diagnosis, which in turn made us wonder whether changes to the organi&ational structure might be the an* swer9 0ther businesses that e$perienced similar problems and sol ed them can then be identified" :aluable input can be pro ided b! role models, as well as b! e$amples to be a oided" Perhaps some other business saw reorgani&ation as the answer onl! to disco er later that a want of competence in the sales force and a negati e or* gani&ational culture might ha e been the correct diagnosis" Perhaps reorgani&ation was the easiest option for the managing director" In an! case, the business ended up spending e en more time on internal matters, which from the beginning had amounted to a negati e cul* tural pattern in the organi&ation" 0n the other hand, a role model might ha e carried out a successful reorgani&ation in a similar situa* tion and got rid of the e il s!mptoms" Then it would be interesting to %now how it went about things and wh! it was successful" 8e would li%e to point out that benchlearning is ne er about imi* tation, as e er! business and situation is uniCue" Attempts to trans* fer an organi&ational structure that wor%ed for one business, to another one, ha e often had catastrophic results" #enchlearning is more about inspiration, about ta%ing good ideas and interpreting them in the conte$t of ones own business" Perhaps a business has decided to re*organi&e to achie e a set of results" This business might gain from contacting one that is %nown to ha e achie ed the desired results" If new ideas are not forthcom* ing and !ou thin% organi&ational change might impro e the situa* tion but want to retain !our operati e effecti eness, !ou might contact Halde$, a compan! that from start*up in 4;GB has success* full! managed to contain these opposing forces" How did the! do it, and what could be learnt from them9

)ecision methodolog!

45B

Again, we might contact a business that has successfull! reorgan* i&ed in order to get inspiration from the preparation and communi* cation that characteri&ed their process" How were the! able to get unions, emplo!ees and managers to bac% the new organi&ation9 A role model might ser e its purpose simpl! in being a force for the good" It has been said with good reason, +If it aint bro%e, dont fi$ it,, but with the e$ample of a role model, the burden of proof passes to the guardians of the status Cuo" It is then up to them to show wh! something shouldnt be changed" 8e could list an! number of wa!s in which benchlearning can be applied to organi&ational change, but we will end this section sim* pl! b! encouraging our readers to freel! see% out information that can be put to good use" 7or those who would li%e to learn more about benchlearning, we can recommend the boo%, Benchlearning 2: erfarenheter frn sju praktikfall 1red" Christian Plei>el" 2toc%holm' E%erlids 655A3, where e$amples from different areas are described and discussed"

)ecision methodolog!
)ecision*ma%ing is often mar%ed b! great uncertaint!, much delib* eration, high in estment, and serious conseCuences" This is especiall! true of decisions ta%en in business, in political situations, in war and peace, or in important human relationships" #! familiari&ing our* sel es with decision theor!, we can learn to ma%e decisions more ef* fecti el! while dealing with the conseCuences of those decisions" In their boo% Smart Choices 1#oston' Har ard #usiness 2chool 4;;G3, Hohn 2 Hammond, Ralph I Deene! and Howard Raiffa de* scribe a methodolog! gi en the name of Pr0ACT, an acron!m that deri es from the first fi e elements in the decision*ma%ing process" These elements are gi en in the table below" 4" Problem 6" 0b>ecti es @" Alternati e A" ConseCuences

456

Tools and conceptual models

B" Trade offs J Trade*offs 6" Kncertaint! L" Ris% tolerance G" Iin%ed decisions 8e ha e used Pr0ACT as our wor%ing method because we ha e found it to be more comprehensi el! useful than other methods in decision theor!" Pr0ACT see%s to anal!&e and clarif! the situations in which we ma%e comple$ decisions" 7or er! comple$ decisions, it ma! be necessar! to carefull! go through all eight steps in the pro* cess" It might suffice to select a number of elements that are espe* ciall! interesting for the situation in Cuestion and go on wor%ing with them" Has the problem been correctly formulated? The problem has to be correctl! formulated for the best result, and comple$ prob* lems must be formulated clearl! and concisel!" As the! sa!, +The answer depends on the Cuestion", Are the goals we want to reach clear? To ma%e good decisions, it is important to ha e a clear picture of what we want to achie e" Have different alternatives been identified? It is important to clar* if! the alternati es" Have the consequences of applying alternatives been thought out? Assessing the conseCuences of decisions is difficult but impor* tant" What trade-offs need to be made? 8e sometimes find that our goals and the decisions we ha e to ma%e in connection with them conflict, so we might ha e to accept a certain amount of conflict and wor% to establish a good balance" At other times we might ha e to relinCuish one goal in fa or of another one" Are there any doubts? It is important to tr! to identif! and clear up an! e$isting doubts before ma%ing a decision" Are we suffi* cientl! confident that the e$ternal business en ironment is de* eloping as we thought9

Elimination of a le el

45L

What risk tolerance is there? )ecision*ma%ers should carefull! loo% at the ris%s in ol ed" If a decision carries an unacceptable le el of ris%, it can be eliminated" How are decisions linked together? A decision made toda! affects future decisions, >ust as our goals for tomorrow affect our deci* sions toda!" In this section we would li%e to underline the importance of thin%ing er! carefull! before going through with a reorgani&a* tion" Apart from the ob ious good sense in anal!&ing decisions of this importance, a carefull! defined goal will guarantee effec* ti eness of the process and the communication in ol ed in it"

Elimination of a le el
In his boo% Cutting Costs 12hanghai People Publishing, 4;;B3, Harr! 7iggie describes how to remo e a management le el and thus ma%e an organi&ation more effecti e" He begins with three rules neces* sar! for building up an organi&ation' 4" A managers span of control should not be more than 45 peo* ple, but neither should it be less than si$ or se en"

6" -anagers with the greatest responsibilit! for compan! results should be part of the e$ecuti e committee and report to the managing director or eCui alent" @" The number of le els between the managing director and the lowest foreman should be %ept to a minimum" Harr! 7iggies ad ice shouldnt be ta%en too literall!, but there are man! cases of onl! two or three indi iduals reporting to the man* aging director of their compan!, which often entails a waste of re* sources" 0n the other hand, if managers ha e too man! people reporting directl! to them, this usuall! means one of two things" Either the management function has been so wea%ened that the Cualit! of reporting has suffered, or subordinates ha e become so independent that there is little effecti e leadership" 7igure 44 illustrates a production setup where the production manager onl! has three department managers reporting directl!"

45G

Tools and conceptual models

MD

Production Manager $ 10 000 Factory Manager $ 8 500

Production Control $ 8 000

Purcha $ 9 000

Chief ngineer $ # 000

Manufacturing Direct $ # 500

!uality Control $ $ 000

"ndustry Contac $ $ 500

Management %ssem&ly $ 5 000

Management Manufacturing $ 5 000

Foreman section 1

Foreman section 2 $ 4 000 25 employees

Foreman section ) $ 4 000 15 employees

Foreman section 4 $ 4 000 employees

Foreman section 5

Foreman section $ $ 4 000 25 employees

'rans( port $ 4 000 12 employees

$ 4 000 20 employees

$ 4 000 12 employees

Labor cost, in total/month: $ 100 500

Figure 11 In his boo%, Cutting Costs, the author gi es the abo e e$ample of an organi&ation o erburdened with middle managers" Total labor costs come to M 455 B55" A change in the organi&ation could radicall! lower labor costs"

-onthl! salar! is gi en for each position, with the total salar! per month of 2ED A6A,555 for all the managers down to the foremen" This organi&ation could be designed differentl!, with considerable sa ings in monthl! salaries" At the same time, not onl! would effec* ti eness be maintained, it would actuall! increase" The organi&ations effecti eness has increased while costs ha e been reduced"

The one*man band

A useful e$ercise is to start with the +one*man band, then add the processes and functions that are essential to the organi&ations success" This is er! much li%e the &ero base approach, where the

The one*man band

45;

MD

*ales

Purchasing

Factory Manager

"ndustry contacts

Controller

Production Control

Chief

ngineer

Manufacturing Director

!uality Control

*toc+

Foreman section 1

Foreman section 2

Foreman section )

Forem section

Foreman section 5,$

'rans( port

20 employees

25 employees

15 employees

19 employees

)# employees

12 employees

Savings/month: 3 Foremen 1 Production Manager otal: $ 14 000 $ 10 000 $ !4 000

Figure 1! #! flattening the organi&ation and remo ing a number of middle managers 1three foreman functions and a production post3, the compan! sa es M 6A 555" Iabor costs are therefore cut b! a Cuarter" 2ource' Cutting Costs"

organi&ational slate including people, capital structures and so on, is wiped clean, and substituted b! the e$isting customer base" The one*man band and &ero base pro ide a %ind of release from situa* tions that ha e become unnecessaril! complicated b! irrele ant or* gani&ational relationships" In the one*man band, hierarch! and wor% speciali&ation can be said to be united in one person" The ad antages of s%ull and scale in the base functions, generall! comprised of de elopment, produc* tion, mar%eting and administration, are concentrated in the same indi idual" 0b iousl!, its practicall! impossible for one person to be the perfect candidate for an! and all the posts comprised in business management" #ut the one*man band contains the entire compan! hierarch! in his person" As the chief e$ecuti e he encour* ages the creati it! in his de elopment self to see% inno ation which, b! being mar%et*oriented, gi es a competiti e edge" The same thing is true of the other functions" 8e gi e an e$ample from

business, but a bright spar% de eloping a section within a public authorit! could ser e >ust as easil!" In +-anagement,, b! Robert Dreitner 1#oston' Houghton -ifflin th ; edition, 655@3 we find a good e$ample of a one*man band de el* oping into something more comple$"

Case stud! N an organi&ations growth Oeorge ?ordemo had alwa!s been a %een fisherman" 8hen Oeorge loaded up his cara an with e$pensi e fl!*fishing gear and headed off to the nearest salmon trout stream, his neighbors %new there was going to be fish on the table" About si$ !ears ago, Oeorge began to tr! his hand at the diffi* cult business of t!ing his own flies" He was a creati e sort of gu! and good with his hands, and soon had managed to construct a fl that had the salmon trout biting" 8ord got around Cuic%l! among the fishing fraternit! and Oeorge was completel! swamped in or* ders for his newl! patented 7antastic 7l! at M B each" 8hat began as a pastime had de eloped into a er! profitable business bring* ing in something li%e M 6 555 a month" Oeorge began to ha e les time for his fishing as sales of the 7antastic 7l! too% off and h spent most of his time t!ing flies" An organi&ation chart at this time would ha e loo%ed li%e a bo$ containing all the functions of the business" Oeorge too% care of operations, technical de elop* ment, production and sales N in an organi&ation that didnt !e e$ist" At this earl! stage, there was no ertical hierarch! or hori* &ontal wor% speciali&ation" 2oon Oeorge found that it was impossible to tie more than a few hundred flies a wee% and ha e time left o er to isit distribu* tors who wanted to stoc% and sell the 7antastic 7l!, so he hired and trained a famil! friend called -ar!*Iou to help him in th small premises he had hired for the business" 8e could alread! ha e drawn an organi&ation chart as soon as -ar!*Iou was hired, for at least two people are needed to creat an organi&ation" It would comprise a simple di ision of labor be* tween Oeorge and -ar!*Iou, with a ertical step from Oeorge to

s e

e e

-.ner/ Manager/ Production/ Mar+eting

%ssistant %dministration

Figure 1" 2imple di ision of labor

-ar!*Iou" -ar!*Iou too% o er the administration, consisting of a sales department, in oicing and boo%*%eeping" As the business grew, Oeorge was able to ta%e on and train four full*time staff, who tied flies under the e!e of himself and -ar!* Iou" He also hired 7red, an old fishing mate and a shrewd salesman" 7red was responsible for mar%eting and the super i* sion of two recentl! recruited sales reps" A financial director was needed soon after this to manage the growing administration" 7antastic 7l! Itd" is toda! a well*established compan! with sales of o er M @ million per !ear" Ha ing seen the business grow step b! step o er the !ears, Oeorge has finall! ended up with a formal organi&ation" This can be seen in the chart below"
MD

Production Manager

Mar+et Manager

%dmin0 Manager

Production personnel

1epresentati2e for *outhern 3ermany

1epresentati2e for Central 3ermany

%ccounts Manager

Figure 1# A mature organi&ation with both ertical hierarch! and hori* &ontal wor% speciali&ation

?ote that 7antastic 7l! now has a ertical hierarch! of three le * els and three forms of hori&ontal speciali&ation" Three managers now do the wor% that Oeorge used to do himself" Oeorges wor% as -anaging )irector will be increasingl! complicated as ertical le els and hori&ontal speciali&ations are added" Increasing im* portance will be gi en to coordination as the right hand has to wor% harmoniousl! with the left" 8or% speciali&ation ma%es co* ordination more difficult as organi&ations are built, but a wor%a ble balance between speciali&ation and coordination can be reached in arious wa!s" This is discussed elsewhere in the boo%"

A great man! organi&ations de elop in the same wa! as 7antastic 7l!" 2omeone with dri e begins to deli er goods or ser ices on their own, then graduall! e$pands the business into a full*blown com* pan!" Things get still more complicated for 7antastic 7l! and Oeorge ?ordemo when he begins to import fishing rods from Thai* land and becomes the agent for se eral European countries" He then has to start sales companies in 2pain, Ital! and 7rance and ma%e sure that the! are specialists in fishing*rods" 2ome cle er chap might then disco er a new wa! of ma%ing lures and spinners to complement the range of flies" 7antastic 7l! thus grows organi* call! and graduall! becomes a fi$ture in the hobb! product range" 7antastic 7l! is a good e$ample of the %ind of model that can pro e useful when loo%ing at comple$ organi&ations, especiall! if we can go bac% to the beginnings, as we ha e done here"

Customer anal!sis
All organi&ed acti it! is based on creating a alue that is higher than the cost of producing this alue" This fundamental principle can be applied to comple$ groups, as well as business units or de* partments such as IT, Human Resources, etc" #! value we mean the relation between utilit! 1Cualit!3 and price" A basic understanding of customer alue not onl! pro ides for long*term success, it is also the best possible foundation for an organi&ation"

Customer anal!sis

44@

Customer alue is a complicated business" The world became ori* ented to producti it! e en before the da!s of the organi&ation theo* rist 7rederic% Ta!lor" 8hen people were poor and goods were hard to come b!, a pair of shoes N an! pair N was welcome" As a result, companies focused on producti it!" #ut the situation has been differ* ent for decades" ?owada!s we ha e plent! of choice and indi idual customers can indulge almost an! taste as to Cualit! or price" -anagement and organi&ed business in general is now highl! s%illed in segmenting customers on a alue basis" The 2candina ian Airlines management at one time cle erl! identified the willingness of business tra elers to pa! for e$tra comfort" This was in the mid* dle of the 4;G5s, when 2A2 launched Euroclass" This segment was relati el! unmo ed b! price, pa!ment usuall! being made with un* ta$ed compan! funds N mone! that could be deducted as costs against income" )uring the last decade, R!anair has identified a large and growing segment that primaril! chooses its supplier on the basis of price but here, tourist class passengers pa! for their tic%ets with hard*earned mone! alread! ta$ed" Touching on the discussion of stabilit! and renewal is the Cues* tion of customer needs and demand" A perception of customer needs and the attempt to satisf! them can lead to a widel! di erg* ing range of goods and ser ices" The need to communicate between Iondon and Paris can lead to the demand for phone calls, a train tic%et, a flight or a ideo* conference" #ut onl! when customers are aware of new and more efficient wa!s of satisf!ing their needs does demand bring forth this offering of goods or ser ices" :alue is defined as a function of utilit! and price, which means that the customers readiness to pa! is affected both b! utilit! 1Cual* it!3 and price" In connection with organi&ation, we ha e seen cases where customer utilit! and price were %ept as separate issues, with e$tremel! negati e conseCuences" The difficult thing is to find the right balance between customer needs and price" As all organi&ed acti it! is based on creating alue for the cus* tomer, an! organi&ation has to prioriti&e customer needs and al* ues" This is also true of the most comple$, speciali&ed production apparatus, when we ma! be sure that production will ha e been speciall! set up to satisf! customer needs" It is therefore wise to

44A

Tools and conceptual models

%now what !our customer needs and alues are if !our organi&a* tion is to ha e the best possible foundation"

The +megaprocess,
#elow we illustrate the megaprocess, i"e" the long road from an under* standing of customer needs to the production apparatus necessar! for deli ering the goods and ser ices that will satisf! those needs" In a few words, the organi&ation problem is to create groupings that can %eep ma%ing this >ourne! most easil! and economicall!"
Production/ apparatus Customer/ needs

Figure 1$ The +megaprocess,

This perspecti e clearl! shows the organi&ational challenge' to implement a rational production apparatus while satisf!ing the demands of customer needs that are rarel! constant and uniform in nature" The car manufacturer To!ota was Cuic% off the mar% to show the world how economies made from large*scale, rational produc* tion could be combined with an adaptation to customer needs" +The machine that changed the world,, b! Hames P" 8omae% et al", 1?ew <or%, HarperPerennial 4;;43 was based on research at the -assachusetts Institute of Technolog!" Production at To!ota is able to create long runs at low unit costs but at the same time ma* nipulate a great man! ariables depending on the indi idual pref* erences of customers" This stands in clear contrast to Henr! 7ords ma$im about blac% -odel T 7ords bac% in the 4;65s" To!ota has again astonished the world and created headaches for its competi* tors b! launching and being able to mass*produce the well %nown Prius, an electricit! and petrol h!brid that hal es normal fuel con* sumption" A license has been sold to 7ord, and Oeneral -otors has >oined )aimler Chr!sler in a ner ous alliance to produce a h!* brid of their own"

-odelling.process mapping

44B

The To!ota e$ample shows how ris%! it can be to as% customers about their preferences" 8hen To!ota began de elopment of the Prius in the middle of the 4;;5s, it did not ma%e sense to consult its customers, as nothing could ha e been further from their thoughts than an electric h!brid" #! being inno ati e and tuning into the en* ironmental concern of reducing petrol consumption while ta%ing a well*calculated ris%, To!ota has surpassed e$pectations" 2o when we put customer needs at one end of the spectrum, we dont mean demand, we mean needs" 8e must be able to loo% at what is behind what customers sa! to understand the underl!ing needs structure if a commercial ris% is to be acceptable" Then we can offer a genuine solution and not >ust a stop*gap" The most important business process is the one outlined abo e" This %ind of well*based simplification can sometimes help to gi e a clearer picture of the organi&ation process"

-odelling.process mapping
8here important wor%flows are concerned, thin%ing in terms of processes is essential if an organi&ation is being o erhauled or re* shaped" -odelling can be used to understand how goals, concepts and acti ities hang together" -odelling ser es three principal pur* poses where organi&ation is concerned" 4" To understand an organi&ations main processes in order to find the structure that best supports them 6" To understand the connections and interfaces in an organi&a* tion that cant be grasped through diagrams or >ob descriptions @" To understand how goals and performance reCuirements for different parts of the business contribute to the whole To understand the principal wor%flows in a business, we ha e to as% oursel es the fundamental Cuestion, 8hat should the business carr! out and how 1in what steps3 is this to come about9 The pro* cesses identified can then be placed against the competence that al* read! e$ists or is needed to do this 1see 7igure 463"

446

Tools and conceptual models

P1 41 42 4) 44

P2

P)

P4

Figure 1% Competence mapped to processes

The matrices show which competencies 1D4*A3 are reCuired in each process 1P4*A3" The following Cuestions can for instance be dis* cussed using the diagram" 4" 2hould we be organi&ed on the basis of competence 1func* tions3 or processes9 The diagram ma%es clear that there is no competence area that onl! wor%s with a particular process, sa!, product de elopment or sales" 6" How should we deal with the dimension 1process or compe* tence3 that we dont use as a basis for our structure9 @" Is there a process in which we utili&e our core competence to a lesser degree 1for e$ample, PA39 Is this process step a candi* date for outsourcing 1see this section on p" ;639 Is there a good reason to ha e a matri$ organi&ation where the emplo!ees ha e their organi&ational abode in the competence areas as well as the processes9

8e might mention in passing the salutar! e$perience of a large Hapanese technolog! compan! that reCuired all its emplo!ees to possess competence in all the process steps in ol ed in a product" All those wor%ing in product de elopment had to follow the prod* uct through the different stages of pac%aging, mar%eting, sales, de* li er!, ser ice, etc" The result was that these emplo!ees, through their understanding of their customers needs and the challenges the organi&ation faced, attained superior commercial abilit!"

/ero*base start

44L

-odeling is an effecti e method of clarif!ing and dealing with organi&ational Cuestions" At DarlEf Consulting we often wor% on large pieces of paper to define and group the roles found within a business" The connections between the arious roles can be opened to group discussion" The roles are then lin%ed together with the wor% assignments of the business and.or the e$isting organi&a* tional structure" This methodolog! can be usefull! applied in other areas, as when discussing an organi&ations goals N what goals do different parts of an organi&ation ha e, and how are these goals re* lated9 N or when discussing sta%eholder relations" 8e ha e found that, when used within a group, modeling can be a er! effecti e wa! of preparing for an in*depth discussion of an organi&ations anatom! or ph!siolog!" Howe er, if the e$ercise is to be successful, a consultant with e$perience of modelling should be used, otherwise there is a ris% of the methodolog! getting more at* tention than the matter in hand"

/ero*base start
It can be beneficial sometimes to +wipe the slate clean, before begin* ning an organi&ation process" 0rgani&ations ma! suffer from an! number of more or less irrele ant issues that obscure the reall! im* portant ones li%e business processes or customer needs" ?egati e things, li%e the unnecessar! e$ercise of power, personal intrigues, or a complicated compan! histor!, can be distracting" A useful ap* proach can be to implement organi&ational processes based on actual and probable reCuirements" All unnecessar! and nugator! aspects of the organi&ation are then swept awa! to allow it to re* in ent itself" /ero*base started to be used with budgeting in the 4;L5s" An an* nual business budget is generall! drawn up on the basis of actual performance and the pre ious !ears budget" This process normall! includes the arbitrar! addition of a certain percentage to e er! item in the budget" This method of planning, based on trend pro>ections, dominated from the 2econd 8orld 8ar right up to the end of the 4;L5s, in a reasonabl! stable world where inflation, unemplo!ment, economic growth etc, de eloped at a predictable rate" The trouble

44G

Tools and conceptual models

with trend pro>ecting was that managers concentrated on cost in* creases from !ear to !ear rather than on the different benefits such costs should ha e been deli ering" #esides, this method did not wor% at all in a world sub>ect to such unpleasant surprises as the oil crises of the 4;L5s" /ero*based budgeting was de eloped b! Peter P!hrr, a manager at Te$as Instruments in )allas" P!hrr established the budget figures e er! !ear as if the figures for the pre ious !ear had not e$isted" E er! condition and assumption had to be re iewed on the basis of the situation as it stood" The pre ious !ear was b! no means ac* cepted as the benchmar% for the current one" It was as though a completel! new pro>ect was >ust beginning" The &ero*base approach 1also called Pclean slate3 is an intellectual e$ercise that frees the mind from minor compan! concerns" Al* though not reall! a full*blown methodolog!, it has its uses and there are a number of wa!s it can be applied" #elow we gi e a step* b!*step approach, best done with the help of a facilitator" 4" 8ho are the intermediaries and end*users we ser e, and how can these customers be di ided into large categories accord* ing to needs9 8hat groupings, when ma%ing new sales or pro iding after* sales ser ice, are most suitable for ser ing these customer segments9 8hat competencies and resources do these groupings need if the! are to ser e their purpose9

6" @"

A" 8hich supporting functions and processes 1manufacturing, Human Resources, IT, etc3 call for speciali&ation and therefore separate groupings9 B" 8hat ad antages of s%ull and scale can be found in the pro* duction of the goods and ser ices deli ered9 6" How can the indi idual needs of customers be optimall! weighed against these s%ull and scale ad antages9 L" )o comple$ s!stem deli eries need to ta%e other units into ac* count in order to ma$imi&e customer alue9

E$ternal en ironment anal!sis

44;

G" 8hat wor%ing methods can be used to ta%e customi&ed pro* duction into consideration9 ;" 2pecif! and assess where competence areas depend on each other" 45" Oi en the abo e, how should we build a new organi&ational structure9

E$ternal en ironment anal!sis

8e ha e emphasi&ed that the demands made on an organi&ation b! the e$ternal en ironment should determine its structure" The e$ter* nal en ironment of a business comprises the mar%et and industr! with its competitors, together with all the e$ternal sta%eholders, in* cluding politicians, customers, in estors, lenders, media, etc" Oet* ting information can be done in different wa!s, depending on ones aims and ambition le el" E$ternal anal!sis means, as do man! terms in management, different things to different people" The term business intelligence has been used in this connection' %eeping oneself informed about what goes on outside a business" The term external environment analysis is usuall! Cualified as stra* tegic or operati e" The former see%s to identif! long*term de elop* ments in the e$ternal en ironment that will affect the business, while the latter attempts to find factors that will ha e a direct effect on the business and therefore must be dealt with immediatel!" 7rom an organi&ational point of iew, both strategic and operati e e$ternal anal!sis are important" Perhaps the first has the edge in re* organi&ation, when theres a focus on future success" The identifica* tion of trends and de elopments affecting a business will be important in an! case" PE2T is a model used to scan trends and de* elopments in four areas" &olitical.legal trends, such as those found in legislation, trea* ties, ordinances and political stabilit! 'conomic trends, such as those found in economic de elop* ment, interest le els, access to enture capital and the labor mar%et situation"

465

Tools and conceptual models

(ocio*cultural trends, such as those found in demograph!, dif* ferences in income, ethnical groups, changes in life*st!le, le els of training, and attitudes to wor% and leisure time" )echnological trends" ?ational and supranational in estment, technological change, technological maturit! and new disco * eries" There are different models that can be used to act on trends once the! ha e been identified" Trends are usuall! identified b! means of a risk map, where one a$is represents potential effect and the other, probabilit!" E$tra attention should naturall! be gi en to probable trends with great potential effect" A useful e$ercise can be to discuss the li%el! effect on !our or* gani&ation of arious significant trends, both threats and opportuni* ties" The following Cuestions ma! be used for this purpose" 4" 8hat can the trend lead to9 Oi e a description of the trend" How has it been identified and what Cualifies it to be a trend9 6" 8hat %ind of effect can the trend ha e on the business9 1An assessment is made of the threats or opportunities the trend might in ol e"3

@" How do we react to the trend9 8hat le el of preparedness is there for the trend9 Can we deal with a de elopment in our e$isting organi&ation, or do we ha e to ma%e changes9 A" How will the de elopment of the trend be monitored9 8hat indications can we follow up to do this9

The abo e description is a relati el! simple trend anal!sis that can be done Cuic%l!" -an! e$perts in the field wor% full*time identif!ing and describing business trends, and this is >ust at the macro*le el" A useful e$ercise can be to match arious de elopments in the e$* ternal en ironment against the strategies that the business has iden* tified" )oes the orientation of the business tall! with de elopments in the e$ternal en ironment9 E$treme results for different trends can be combined in different wa!s to isuali&e possible scenarios" 8hat for e$ample would be

E$ternal en ironment anal!sis

464

the outcome if the trademar% were to become much more important at the same time as a dramatic increase in consumer power9 How could we best organi&e oursel es to prosper in this %ind of en i* ronment9 In other words, an e$ternal anal!sis can be carried out more or less according to current trends" #ut it can be a big mista%e to appl! the G5*65 rule 1briefl!, G5Q of the results in an! situation are determined b! 65Q of the causes3" -an! businesses doing this ha e found that it was >ust in that 65 per cent that the future la!" The following issues are particularl! interesting from an organi&a* tional perspecti e" Kncertaint! and de elopment of the mar%et )e elopment of competitors and the industr! Changes in customer beha ior and needs structures Product and technolog! de elopment Political de elopment N especiall! with regard to deregulation 2tructural trends in organi&ation" An e$ample is outsourcing" Access to competent managers and co*wor%ers ?ew businesses in the industr! The researcher Hoseph )" Thompson categori&es the e$ternal en i* ronment as two opposite pairs' 4" Homogeneous s" heterogeneous In a homogeneous e$ternal en ironment, an organi&ation need onl! consider a few pla!ers who are all fairl! similar" A heterogeneous e$ternal en ironment comprises man! differ* ent pla!ers" 6" 2table s" turbulent A stable e$ternal en ironment is relati el! predictable and doesnt change er! much o er time while a turbulent e$ter* nal en ironment is >ust the opposite" #! combining these dimensions we obtain, as in 7igure 4L, a 6 R 6 matri$ that can be used to discuss suitable organi&ational forms from the perspecti e of the e$ternal en ironment"

466

Tools and conceptual models

*ta&le

'ur&ulent

5omogeneous

5eterogeneous

Figure 1* Thompsons e$ternal en ironment matri$

Here we summari&e Thompsons iew on the organi&ational forms suitable for the different fields of the matri$" 4" 2peciali&ed, highl! regulari&ed organi&ations di ided into functions, with management b! rules" Can be compared to -int&bergs +-achine bureaucrac!, 1see page 6G3 6" Independent di isions focusing on different mar%et segments" Can be compared to -int&bergs +)i isionali&ed form, 1see page 6;3 @" 2mall*scale ad antages are er! e ident in this field" The or* gani&ations are either small or hea il! decentrali&ed, in that speed and closeness to the mar%et are important" -int&bergs +Professional bureaucrac!, can be found here 1see page 6;3" Recommended here is an organic structure with great fle$ibil* it! and little standardi&ation, perhaps something in the order of a decentrali&ed matri$ organi&ation or a networ% structure" -int&bergs +Adhocrac!, can be found here"

A"

8e should point out that these recommendations are not blueprints for success" The! simpl! represent a model that can be used to dis* cuss and anal!&e organi&ational structure"

0rganigraph

46@

0rganigraph
Henr! -int&berg and Iudo an der He!den describe in the Har* ard #usiness Re iew a fresh wa! of loo%ing at organi&ations called an organigraph" The authors maintain that traditional organi&a* tion charts are li%e photo albums, with pictures of +our compan!," The! belie e that there is too much emphasis on formal manage* ment culture with its hierarchies and that this is largel! irrele ant in toda!s world" As traditional hierarchies disappear and new, com* ple$ organi&ations ta%e their place, people will find it increasingl! more difficult to understand how their organi&ations wor%" An or* ganigraph is a new wa! to approach an organi&ations architecture and such Cuestions as 4" 8hat parts of the organi&ation are inter*connected9 6" How should processes and people be coordinated9 @" 8hich ideas operate where9 The organigraph does not eliminate the traditional sCuares of an organi&ation chart but it introduces new components called hub and web which, the authors belie e, are forms of organi&ation that better reflect the wa! in which people organi&e themsel es at wor% toda!" The bewildering number of dependent relationships in com* panies nowada!s calls for a different response from management, one that ac%nowledges the rele ance of departmental interfaces" An organigraph is generall! understood to contain two compo* nents, the first of which is called a set, b! which is meant a set of something, li%e machines or people, the di isions in a group, or professors at a uni ersit!" 2ets commonl! share resources in the form of capital, management, or other resources" The authors fur* ther e$plain that companies do not simpl! e$ist to ha e sets" The! e$ist to create connections between different sets, which is e$* plained b! the other component of the organigraph, chains" A fac* tor! recei es material and con erts it into components of an assembl! that is deli ered to the customer" An organigraph is not so much a tool for establishing an organi* &ations structure as a de ice for constructi e discussion on how the

46A

Tools and conceptual models

organi&ation functions" In this it is er! much li%e a business model, b! which a business see%s to generate re enue and profits" An or* ganigraph does not account for such things as report flows or the relation between a manager and his emplo!ees, but it does e$pand our thin%ing on important resources and flows in an organi&ation" In this respect it can be aluable in shaping a new organi&ation or ma%ing an e$isting one more effecti e"

Performance criteria
0n page LL we discuss the concept of effecti eness in greater detail" Effecti eness is based on the perhaps strange sounding proposition that, +all organi&ed acti it! is for the purpose of creating a alue that is higher than the cost of producing this alue," 0ne of our conclu* sions is that the greater part of organi&ed acti it! ta%es place under the conditions of a planned econom!, as an organi&ations internal units deli er to the recei ers of goods and ser ices who dont ha e a free choice between suppliers and are financed +from abo e,, i"e" b! management" The suppliers here ha e a monopol!, as no other unit within the organi&ation can suppl! the desired product" 0ne thing we could do before beginning to organi&e, is to loo% at each unit in an e$amination of how performance is measured in dif* ferent parts of the organi&ation" -an! things cannot be measured in terms of mone!, so we ha e to loo% for other criteria for producti it! and alue creation if we are to find rele ant indicators that can be measured" Producti it! is related to costs and therefore easier to measure, but Cualit! or alue is to be found in the e!e of the beholder and therefore harder to Cuantif!" 8e would therefore do well to con* sider going through the organi&ation section b! section and loo%ing for performance criteria for each one" 8e should be primaril! loo%* ing along the a$es for alue 1or Cualit!3 and producti it!, i"e" the cost of producing and deli ering a thing" This approach is often called value analysis or utility analysis" If all organi&ations were to periodi* call! re iew the effecti eness of their units and establish performance criteria, we would be in a position to ha e a performance culture as an alternati e to a bureaucratic culture"

Problem anal!sis 1P)23

46B

Problem anal!sis 1P)23

Problem )etection 2tud! 1P)23 was introduced as a alue anal!ti* cal methodolog! in the consumer goods industr! at the beginning of the 4;G5s" It originated in the obser ation that people generall! find it more difficult to tal% about how to impro e something than to describe the problems e$perienced when using it" A sun cream was wanted that didnt stic% to the bod! and the result was the emergence of HTH, an inno ati e dr!*s%in lotion" A demand arose for a dog food in portions of different si&es so that it wouldnt ha e to be %ept in the fridge and impart an unpleasant smell" The same approach has been used successfull! for producer goods and consumer durables" #! ran%ing, but also b! weighting the arious problem areas, we can get a list of the most important ones" Then we can approach them one b! one" In 7igure 4G is a dia* grammatic presentation of P)2 directed at the customer'
Phase 1
Customer/ inter2ie.s/ decision(ma+ers7/ ad2isers

sta&lishment/ of the study

"nter2ie.s .ith/ company6s +ey/ people

8isting pro&lems/ and formulating/ 9uestionnaire

Phase 2
Distri&ution of/ pro&lem list to/ hea2y users: occasional customers and lost customers

Data processing/ of responses

%nalysis

1eporting

Figure 1+ P)2 wor% methodolog!

#! using a P)2 in his or her organi&ation wor%, a manager can identif! the importance of different problems and be sure that prob* lem areas are dealt with in the correct order" Relati el! tri ial prob* lems too often claim center stage because a particular perspecti e is allowed to dominate" It goes without sa!ing that as far as customers

are concerned, we cant do better than carr! out a P)2, but here we are primaril! interested in its internal use in dealing with organi&a* tional problems"

7air process
DarlEf Consulting has de eloped the theor! of a fair process to com* prise se en elements, which together result in the acceptance, lo!* alt!, learning and responsibilit! necessar! if a process of change is to be completel! successful" Reorgani&ation is as good a time as an! to stri e for integrit! in our dealings with one another, especiall! as the whole process of change becomes easier and more effecti e" -an! people tal% about the importance of Pprocess in such wooll! terms that its difficult to understand e$actl! which ele* ments are supposed to bring greater organi&ational effecti eness" The concept of process in this respect often seems to be some group*d!namic affair stage*managed b! the HR department" In an! case, there is no scientific proof to show that a degree of emplo!ee participation will create greater effecti eness in terms of better compan! results" This is wh! we sa! that the importance of fair pro* cess can onl! be properl! understood through logical argument" The se en fundamental points in a fair process are as follows' 4" otivational forces are created that lead people to lend their creati e >uices to the process, so that the mental acti it! is of a higher Cualit!"

6" !n explanation for wh! certain options and not others are se* lected, is a result of participation" People are allowed to ma%e disco eries for themsel es and raise ob>ections, ma%ing it eas* ier for them to accept the options that are finall! chosen" @" Clarity in "hat is expected of people after changes ha e been carried through" Practicall! all the wor% of change reCuires different beha ior and competence and places fresh demands on performance" Through fair process, e er!one is brought to understand and accept such changes"

7air process

46L

A"

Collective learning is a part of the process' people come around to seeing things from the same perspecti e" 8e ha e come across organi&ations where management had a prett! ha&! notion of important concepts and the conditions for collecti e learning were absent"

B" ! higher ambition level is almost alwa!s the result of fair pro* cess" The group doesnt ha e to be urged to greater effecti e* ness" It will want to perform better, with fewer resources, of its own accord" 6" A loyalty to company decisions, a commodit! often missing, comes through fair process" In the 2candina ian business cul* ture, as in some others, it is no longer the norm to follow in* structions" People want to Cuestion e er!thing, which is not a bad thing in itself, but it can lead to rebellion, as in the merger that was planned in 4;;6 between :ol o and Renault"

L" #he responsibility for fulfilling goals is shared b! e er!one in* stead of falling automaticall! on the shoulders of the man* ager" Participants in fair process feel that the! are responsible for decisions that are made" -anagements probabl! ignore fair process because of a lac% of time, the effort in ol ed and the conflicts that can arise" 8e ha e seen man! instances of the outsourcing of organi&ational changes to consultancies where the resulting structures could not be under* stood b! the people wor%ing in them" 8e ha e met senior manag* ers in large companies who didnt %now who the! were deli ering to, how e$ternal customer utilit! was created, or what figures con* trolled the performance of their own units" Highl! Cualified people ha e a tendenc! to e$aggerate the impor* tance of anal!sis to the detriment of consensus" In benchmar%ing, we ha e often noticed how people feed huge Cuantities of data into esoteric s!stems but do not end up with significant results" 7air pro* cess reCuires human contact and thats a different ball game" 8e must be prepared for differences of opinion and conflicts of one sort or another" There has to be a framewor% for the learning process and abo e all, !ou must be prepared for all this to ta%e time" -an!

46G

Tools and conceptual models

regard fair process as a waste of human and other resources, but we still belie e that it is an important element in the process of change and especiall!, in changing an organi&ation" As the! sa! in the K2A, +<ou ha e to get !our hands dirt!",

8hat cannot outsourced9

be

$xtreme outsourcing is a close relation to the concept of + irtual or* gani&ation," :irgin Cola is famous for ha ing won a good BQ of the #ritish cola mar%et in one !ear with >ust fi e emplo!ees" 2o we can imagine a scenario where a number of people go through all the departments of an organi&ation loo%ing for what can be outsourced" 7or e er! candidate, the pros and cons of outsourcing are listed, as well as the ris%s and transaction costs before and after outsourcing" The point of this e$ercise is to introduce a contrast to the image of a fairl! highl! integrated business" A number of areas should generall! be retained under ownership control" 2ome of the most important of these are' Trademar% -ar%eting strateg! Research and de elopment 2pecific production technolog! Competence de elopment These are b! no means untouchable, howe er" There ha e been cases where de elopment wor% has been outsourced to en iron* ments where the combination of creati it! and producti it! was higher than in the outsourcer organi&ation" The trend towards globali&ation is causing a change in the comparati e ad antages en>o!ed b! different countries, and the new opportunities created can lead to reflection, not onl! about outsourcing, but on organi&a* tional structure itself" Highl! speciali&ed companies in areas li%e trademar% and mar%eting strateg! can also offer outsourcing in these acti ities that are normall! at the center of compan! structure"

:alues and beha ior

46; 46;4

8e can see an e$ample of this in low*cost airlines li%e 2outhwest Airlines, eas!Het and R!anair, companies that ha e thought along similar lines and which differ greatl! from highl! integrated tradi* tional airlines with a state monopol! bac%ground" The thin%ing behind e$treme outsourcing can be put down to strateg! 1a pattern of decisions and actions in the present to ensure future success3 but it will naturall! ha e far*reaching effects on the wa! businesses are organi&ed"

:alues and beha ior

An organi&ations alues command attention when it reorgani&es and decides to Cuestion its cultural patterns" 8e define alues as fundamental principles and beha ior that gi e an organi&ation its form and character, per ades its performance and shapes its culture" An organi&ations alues ha e deep roots" :alues outlast manage* ments, strategies and technological brea%throughs" :alues are the mortar that holds the bric%s of the organi&ation together when the business has been decentrali&ed, di ersified, de eloped or e$panded" :alues can be positi e as well as negati e' a readiness to change, openness, curiosit!, conser atism, self*absorption and a disrespectful attitude towards women are some of the alues that ha e been noted in organi&ations" 8hen an organi&ation wor%s on its alues, it see%s to bring to the fore the positi e ones to re*point them into the com* pan! culture, and discard the rubble of negati e alues" A go ernment department described its business b! comparing it to an iceberg" The mo ement of the iceberg is affected b! winds abo e the waters surface and b! currents below it" The winds com* prise goals, procedures, processes, the organi&ations structure and e er!thing that the management +owns," The currents are made up of old routines, traditions, relations and m!ths, all of which form the basis of the organi&ations alues and culture" This department had wor%ed for a long time on the winds without an! significant changes, and so the! concluded that the! had to go to the bottom of the problem and tr! to harmoni&e the currents with managements

4@5

Tools and conceptual models

intentions, bringing positi e alues to the surface and eliminating the negati e ones, or at least diminishing them" Research has called attention to the importance of wor%ing on alues at e er! opportunit! N at mergers, for instance, or in connec* tion with outsourcing" ?ew groups are created and are naturall! e$pected to fit in effecti el! when a compan! reorgani&es, while there will alwa!s be sub* cultures in organi&ations of a certain standing, which is wh! we emphasi&e the importance of assessing compan! alues when contemplating organi&ational change" 8hen wor%ing with alues it can be eas! to get entangled in sophistr!" 8hat are alues an!wa!9 How do the! relate to beha * ior, attitudes S9 The ps!chod!namic perspecti e, i"e" e$amining the meaning of e er! tendenc! in an organi&ation when it changes, has often dominated in this area and is all er! well, but it rarel! produces actual results" #ut we can recommend the application of cogniti e beha ioral therap! 1C#T3" C#T simpl! see%s to identif! the %ind of beha ior an organi&ation is happ! or unhapp! with, then loo%s for the %ind of structures that will reward the positi e beha ior while eliminating or diminishing the negati e beha ior" #! ha ing this %ind of effect on beha ioral patterns, C#T helps an organi&ations basic alues and culture to ta%e on the desired orien* tation o er a period of time" It goes without sa!ing that in all wor% on organi&ational alues, changes must be top*down" Too man! times ha e we witnessed management directi es calling for a certain beha ior, onl! for the management 1often the instigator of the measure3 to default on the desired action" 0f course, this sends the wrong signals to the rest of the organi&ation" )eep corporate alues can easil! be forgotten when organi&a* tional structures are in the planning stage" 8e strongl! recommend that time be set aside for dealing with them" 8e are in complete agreement with the ma>orit! of researchers when the! state that how these issues are handled can be critical to the success of plans to organi&e or re* organi&e"

CHAPTER L

Reorgani&ation step b! step

In de elopment wor%, no one reorgani&ation is li%e another, but there are a number of signposts that can be followed on the wa!"
)able ! Reorgani&ation step b! step 1 ,urrent situation ! &re-conditions " -esign -oti es )iagnosis Ideological basis 2ta%eholders )ecisions Processes 2tructure 1anatom!3 8or%ing methods and s!stems 1ph!siolog!3 Culture and alues 1ps!cholog!3 # ,hange Pro>ect formulation 0pposition 2!stem changes Chec%list for change

8e wont tr! to be all*inclusi e for each phase %eeping instead to the most important points with reference to other sections of the boo%"

Current situation
E$perience and research show that businesses often embar% on change for reasons that ha e nothing to do with the organi&ations best interests" If !ou are thin%ing about ma%ing changes to !our or*

4@6

Reorgani&ation step b! step

gani&ation, its important therefore to be honest with !ourself" 2ome of the moti es for organi&ational change are' A" 2elfish interests' to further ones own career" #" Power deri ed from influencing the actions of others" C" Personal Cuestions arising from people wor%ing together" Per* sonal chemistr!' s!mpath!.antipath!" )" Current trends, such as flat organi&ation, di iding an organi* &ation into business units, etc" E" Calls for change from owners or compan! boards" 7" Indications that the effecti eness of operations is waning, or a fear of looming difficulties because of the e$ternal en iron* ment, business mission, etc" All of these factors come down to our perception of realit!, whether it be ps!chological or oriented to the business" The better our grip on this realit!, the more pertinent changes will be" It might be a good idea to hire a de ils ad ocate to clarif! moti es b! stimulat* ing discussion" Remember, changing the organi&ation ma! not be the solution to the problemT The other important component of this phase is producing the correct diagnosis and for this we need a clear picture of the reasons for reorgani&ation" 2!mptoms that can be traced to the organi&ation are, for e$ample' 7alling profitabilit! 2lower growth Coordination problems Internal focus Customer uncertaint! Iow producti it! International in estment 2tructural deals 1acCuisitions, mergers3 Changes e$pected in the e$ternal en ironment

Pre*conditions

4@@

#efore underta%ing change, write down the s!mptoms that !our new organi&ation is going to cure" 8hat problems will be dealt with, what strengths will be utili&ed, what opportunities will be ta%en, what threats will be nullified9

Pre*conditions
2tart with the basic propositions" 8hat we mean b! this can be seen in more detail under the heading, +8hat is the ideological basis9,, on page 6L" A business should be organi&ed according to its orientation, which is wh! an! organi&ational change should in ol e decisions on the organi&ations ision, strategies and business mission" The first things to be discussed and re*established should be' 4" #usiness mission.operating concept.assignments 8hat are the aims of the business9 6" :ision.ambition 8hat is the management or boards scenario for the long* term de elopment of the business9 @" 2trategic priorities.strategic agenda 8here should the business in est energ! to reali&e its i* sion9 A" 0rgani&ation culture 8hat culture and sub*cultures does the business ha e9 The ideal organi&ation should pro ide effecti e deli eries to the important sta%eholders of the business" 0ne step in the reorgani&a* tion process is thus to identif! sta%eholders and find out where their interests lie" An! organi&ation is bound to ha e a fairl! wide circle of sta%eholders, organi&ations that in one wa! or another ha e an interest in the business" 2uch an interest might be of a fi* nancial nature 1ban%s and in estors3, ha e a dependence relation* ship 1competitors or partners3 or a financial interest 1customers and suppliers3, or some other relationship" The most important sta%e* holder groups are normall! customers, owners, and emplo!ees" 7igure 4; shows how each principal sta%eholder deli ers alue'

4@A

Reorgani&ation step b! step

*hareholders .ho create/ opportunities and/ re.ards for

customers .ho/ deli2er profit to

co(.or+ers in the/ company .ho create/ 2alue for

Figure 1. 2ta%eholder alue circle

A little thought often produces a number of other sta%eholders such as suppliers, in estors or anal!sts, partners, as well as internal units and distributors" The modeling tool on page 446 can be er! useful in this wor%" 7rom an organi&ational perspecti e, it can be interesting to dis* cuss the following for each sta%eholder relation' 8hat do we get from our sta%eholders9 1for e$ample, ph!sical products, mone!, information, ideas, image, etc"3 8hat do our sta%eholders get from us9 1see abo e3 How well do the abo e relations function in the present or* gani&ation9 8hat potential is there for impro ement9 How important is a sta%eholder to us and how much time and energ! do we de ote to this sta%eholder9 8hat sta%eholder entries are there to the organi&ation9

)esign

4@B

)iscussion of these Cuestions can lead to an indication of an organi* &ations potential for impro ement" <our business might ha e a few important suppliers but lac%ing a main contact if purchasing has been decentrali&ed at the di ision le el" This might den! !ou an opportunit! to close beneficial agreements or coordinate !our pur* chasing, so the establishment of a central purchasing point might be something to pursue" The single most important sta%eholder from an organi&ational perspecti e is the customer" The customers needs toda! and tomorrow should alwa!s be studied before a reorgani&a* tion 1see +Customer Anal!sis, on page 4463" A business normall! defines its main processes on the basis of its customers" 0nce our ideological foundation and sta%eholder needs ha e been re iewed, we will ha e reached an important point concerning whether to reorgani&e" The decision we are faced with doesnt so much concern the structure of our organi&ation, as whether reor* gani&ation is the solution to the problems we ha e been ha ing and in fact will satisf! the needs of our sta%eholders" 8e often ma%e de* cisions intuiti el!, on gut feeling and the facts a ailable, but be* cause so much depends on the decision !our are going to ma%e, !ou might li%e to loo% again at the outline of decision*ma%ing methodolog! on page 45B in Chapter 6" Iearning from others ma%es sense in this %ind of decision" 0ther businesses ha e er! probabl! faced similar problems to !ours and dealt with them in arious wa!s, so wh! not ma%e use of !our e$* ternal contacts9 Kseful information can be gained from both the disasters and the success stories" 7or more on this see Benchlearn% ing in Chapter 6" <ou might also be moti ated to measure particu* lar things' problem studies 1page 46B3 ha e been shown to be an effecti e tool"

)esign
A process comprises a series of refining acti ities that are carried out within a delimited area" A particular input and output are specified for the whole process and each sub*process 1stage of the whole pro* cess3" The processes of a business are usuall! di ided into three dif* ferent categories'

4@6

Reorgani&ation step b! step

4&

anagement processes -anagement processes are used to orient and de elop a busi* ness" The! e$ercise a controlling function o er the other pro* cesses of the business" Common management processes are the strateg! process, the business planning process and the budget process" ain processes 'also called business processes or core processes( -ain processes comprise those processes that are directl! connected to the principal aim of the business and are often described in the business mission or operating concept" A business mission usuall! identifies a customer need so that a satisfied customer will pa! for it" In commercial en iron* ments, these main processes describe a compan!s business, i"e" what it will ma%e mone! from"

6&

@& Support processes 2upport processes help the main processes to function effec* ti el!" Common support processes are personnel*related pro* cesses, IT processes and administrati e processes" To begin with a compan!s processes when reorgani&ing is to put the business before the structure, which e$perience has shown is a wise thing to do" The word processes nowada!s %indles little in* terest in some circles, being associated with detailed charts that at best onl! illustrate current operations" 8hat we mean b! processes are transcending descriptions of how we deli er alue to our im* portant sta%eholders" Then we can determine how the business is to be managed and what main support processes will be reCuired" #! structure we mean a definition of how an organi&ation should be di ided schematicall! and where its co*wor%ers should be lo* cated" If the pre*conditions are right, we stand a good chance of finding the right structure" #ut to find the right basic structure, we first need to loo% at the di ision of wor%" 0rgani&ations ha e to find the right di ision of labor, then speciali&ation can be introduced" )i ision of wor% can be discussed at the indi idual, or the group le el" At an indi idual le el, we are tal%ing about the scope of the tas%s assigned to each role" 2hould acti ities be fine*tuned as in

)esign )able " Pros and cons with different t!pes of organi&ation
)ypical advantages Function )ypical disadvantages

4@L

2peciali&ation. +s%ull, ad antages Economies of scale A oidance of unnecessar! wor% Clarit!.possibilit! for control

Iac% of coordination and customer focus Cultural difficulties Impossible to delegate accountabilit! for results ?o clear e$ecuti e career line Iong changeo er times

-ivision

)ecentrali&ation of accountabilit! for results 2hort changeo er times Ad antages of small*scale operations Conditions for growth

?o utili&ation of ad an* tages of s%ull and scale Ris% of unnecessar! wor% Ris% of unfair internal competition )ifficult! with internal pricing Kndue focus 1for e$ample on products3 8ea%nesses in non* commercial applications Ris% of greater centrali&ation

/atri0

7ocusing on se eral dependenc! relationships 1fle$ibilit!3 Intensi e information pro* cessing Effecti e distribution of resources

-eaningless e$ercise e$cuse 1ambiguous responsibilit!3 Ris% of power struggles Ris% of group sic%ness 8ea%ness in ad ersit! Oreater common costs ?a el*ga&ing )ecision indecision

4@G

Reorgani&ation step b! step

scientific management, which fa ors intense speciali&ation, or should we be loo%ing at broader roles, with people trained to co er dif* ferent >obs9 The answer often lies somewhere in the middle" Too much speciali&ation carries the ris% of curbing moti ation, while e$cessi e generali&ation of wor% roles ris%s a decline in producti * it!" An organi&ation is normall! classified on the basis of one of the following t!pes' 4" 7unction 1from the assignments to be carried out3" 6" )i ision 1according to product, mar%ets, customer categories3" @" -atri$ 1combinations of the first two3" Each t!pe has its pros and cons" #elow is a list of a number of points for and against each structure" All organi&ation boils down to finding the optimal di ision of wor% to satisf! the needs of important sta%eholders and reach common goals" This is not to sa! that all the acti ities in the process chain are best carried out within ones own organi&ation" -ore and more organi&ations are wa%ing up to the use of outsourcing as an organi&ational component" 7or more on this, see page ;6 in Chap* ter B, under the heading +0rgani&ation boundaries," 8e ha e defined an organi&ations processes and structure" ?ow we ha e to establish the "orking methods based on the principles of the new structure" 7orms of collaboration, decision procedures, di* ision of responsibilit!, and so on, must be clarified to a oid unnec* essar! wor% and discontinuities" Information s!stems, often an obstacle when changing an organi&ation, must be aligned with the new structure" An organigraph is a useful tool to appl! when the organi&ation +comes ali e," 1page 46@3, modeling 1page 44B3 and performance criteria 1page 46A3" 2ome factors that should be dealt with are' -anagement" 8hat management philosoph! does the board or management ha e and how should it be put into practice9 -easurabilit!" 8hat performances or results will management be able to follow up and use to control the different parts of the business9

Change

4@;

Interfaces" How are interfaces disposed in the organi&ation and in respect of its sta%eholders9 Problems often arise in the gaps between processes, hierarchic designations, etc" Roles U responsibilit!" 8hat delegating options should the or* gani&ation accommodate and what decisions should be made at the arious le els of the hierarch!9 Reward s!stems" How should managers and emplo!ees at all le els be moti ated to contribute to the organi&ations efforts in the short and long term9 An organi&ations psychology in terms of culture and alues are not eas! to understand and people who thin% in terms of structures commonl! fail to gi e them the attention the! need" The effects of changing an organi&ations structure and wor%ing methods can be nullified if its culture has not been sufficientl! respected"

Change
An! reorgani&ation is a rigorous, time*consuming e$ercise that can become er! personal in that it changes the >obs of man! people as well as the balance of power" Hust as with other pro>ects, it is er! important to establish pro>ect groups, wor%ing methods, schedules, decision points and the budget" The Cuestion that first arises is, 8ho is to do what in the organi* &ation wor% within the framewor% of the pro>ect groups started9 The role of the board, the management group in its current form, the trade unions, and the e$tent to which consultants should be en* gaged' these are Cuestions that must be addressed" Consultants can be used as sounding boards or pro>ect leaders, which would bring to the organi&ation the e$periences of other businesses and lend an ob>ecti e e!e to the process" #ut its important for managers in the organi&ation not to relinCuish responsibilit! for the process of change and outsource the thin%ing to consultants" Consultants could handle specialist Cuestions and pro ide the e$pertise on processes, with management ta%ing care of business aspects, ambition le el and decisions"

4A5

Reorgani&ation step b! step

As in all reorgani&ation, there is an almost infinite number of Cuestions, all ha ing ar!ing importance in a specific situation" In the table below we gi e a menu of possible parameters for shaping the agenda in a specific reorgani&ation situation"
)able # Parameters in the wor% of change
4" Clarit! regarding strateg! G" Effecti eness 6" 0rgani&ation @" Time a$is A" In leaps or graduall! B" E$pansion or contraction 6" Changed information L" Clarit! of goals ;" Performance reCuirements 4B" Centrali&ed.decentrali&ed 46" Process modelling

45" Participation N fair process 4L" -anagement s!stems 44" Ieadership 4G" -anagement de elopment

46" Competence reCuirements 4;" 2!stems 4@" #rea%ing down goals 4A" ?eed of ision.ambition 65" Culture 64" Communication

8e would li%e to conclude with those little words of wisdom, +It all ta%es time+" It ta%es time for a new organi&ation to settle, so we shouldnt e$pect e er!thing to wor% perfectl! from da! one" 8e %now of managements who got so wor%ed up when their new or* gani&ation did not ha e the desired effect that the! carried out an* other reorgani&ation a few months later" 8hen this one did not produce Cuic% results either, the! went in for !et another reorgani* &ation" E er! time this happens emplo!ees ta%e less notice than be* fore, probabl! thin%ing to themsel es, +Ill >ust carr! on as I alwa!s ha e", Patience is a irtue in all reorgani&ation, which in itself is not a good ehicle for short*term results" This boo% is intended as a down*to*earth and reliable guide for those thin%ing of new organi&ation" 0ur aim has been to pro ide rele ant information on the sub>ect so that readers can form their own models that will wor% in a specific situation" The number of ariations on the theme of reorgani&ation are probabl! infinite, but it seems to us that if people are aware of the arious aspects of re* organi&ation wor% and the tools a ailable to deal with it, the! will stand a good chance of a oiding the pitfalls and coming up with the best solution for their own situation"

Change

4A4

An e$ample from the pharmaceutical industr! 0ne of the worlds largest pharmaceutical companies operating globall! was organi&ed in a European countr!, manufacturing products for three main areas, including gastrointestinal and car* dio ascular diseases" Apart from these business areas, there were a number of support functions in ol ing both operations and staff" -an! of its e$ecuti es reported to the countr! manager" 2chemati* call!, the organi&ation appears as shown in 7igure 65"
Country Manager

;usiness *egment %

;usiness *egment ;

;usiness *egment C

Function %

Function ;

Function C

Figure !1 0rgani&ational structure before changes

-an! managers reported directl! N to be e$act, 44 functions" 2ales and -ar%ets were sorted under business areas" 2ales mainl! consisted of contacts with patients and prescription* writing doctors, while -ar%ets met the needs of indi idual preparations for the creation of demand" Problems encountered The business areas and other large departments were li%e silos and the wheel was being rein ented again and again, with sub* optimi&ation the order of the da!" It was difficult for uniform be* ha ior to gain acceptance across the organi&ation" It was not clear where responsibilit! la! and there was agueness at man! le els when it came to ma%ing decisions" As far as the authorities in the European organi&ation were concerned, there were forums for mar%eting managers, sales managers, medical management, and so on, so that an! one compan! structure did not fit in with the Oroups other companies in the countr!" The fact that 44 impor* tant e$ecuti es reported directl! to the -anaging )irector also created problems"

Conditions changed The wa! the countr! in Cuestion dealt with pharmaceutical com* panies changed dramaticall! in a few !ears" The most important change has been in customers and the mar%et" )ecisions are now ta%en less often b! indi idual doctors and to a much greater e$tent b! medical committees or other more or less politicall! run bodies, which are gi en greater responsibilit! for costs" This has caused a re olution in the industr!" -ar%eting and sales must now be di* rected at different indi iduals and groups than pre iousl!" The s!mptoms for reorgani&ation can be summari&ed in the following three points' 4" A change in the customer decision structure" 6" )ifficulties e$perienced in the current organi&ational struc* ture" @" )ifficult! in adapting to the circumstances of the Oroup" To this should be added the e$plosi e manufacture and sales of generics, i"e" medicines with the same effect as ones for which patents ha e e$pired and which are sold at lower prices than the brand names" Core points in changes organi&ation and the aim of the new

The aim of the organi&ational change was to do something about the problems in the organi&ation, adapting it to the new decision* ma%ing pattern of the mar%et and at the same time ta%ing into account the dominating organi&ational set*up of the whole Oroup" The main goal was to ensure that patients had access to modern medicines under new conditions in the e$ternal en i* ronment" In this regard, there were three subsidiar! goals for the new organi&ation" 4" Come to terms with the new decision*ma%ing arrangement of prescription writers, calling for the influencing of groups other than the traditional medical profession"

6"

#uild effecti eness into the organi&ation, i"e" do the right things and do things right 1the hallmar% of producti it! and alue3"

@" Create an attracti e wor%place, in ol ing de elopment of the wor%force and a focus on the customer" Important elements in reconstruction 2ome elements were fundamental to the new organi&ations anat* om!, for e$ample, the building of a functional organi&ation to ensure speciali&ation b! function and effecti eness in bringing customers into contact with products in a changeable situation" Perhaps the most important element was the creation of a multi* functional team to focus on products, new decision*ma%ing bodies
"ustomer ! "ustomer 1 1esponsi&le 1esponsi&le

1esponsi&le 1esponsi&le

Customer 1 Customer 2 Customer ) 'herapy/ area Product 1 Product 2 Product )

"ustomer 3 Product 1 1esponsi&le

1esponsi&le 1esponsi&le

Product ! Product 3

1esponsi&le 1esponsi&le

1esponsi&le 1esponsi&le

Figure !1 Principles for the new organi&ation

Country Manager

De2elopment Manager

"'

51

Finances

Mar+et

*ales

Medicine

3o2ernment 1elations

4ey %ccounts

Figure !! ?ew organi&ational structure

in the mar%et and different therapies" At the same time, plans were made to prioriti&e the wor% of decision*ma%ing bodies to secure clear goals, structured wor%ing methods and effecti e re* iew" 7igure 64 loo%s at the input from the units contributing to the organi&ations success" The new organi&ational structure for the whole group is shown in 7igure 66" The lessons from this reorgani&ation e$ercise were' A" A lot of time was used up internall! in the organi&ation N much more time than people had e$pected" #" 2etting up the customer and product planning was initiall! er! complicated" The cooperation of people and units who did not feel in ol ed or were in too man! internal meetings, was reCuired" C" An internal go ernance manual for the organi&ation was made in the autumn, but it was too complicated" )" A number of processes were outlined, which complicated things and got in the wa! of business" E" At first, the authorit! for decisions was not clear" 7" 2ome Cuestions were clearl! more important than others" The importance of communicating the following cannot be o er* emphasi&ed'

4" 8h! are we doing this9 6" 8hat do we actuall! want to ha e9 @" How is the selection process for each ser ice organi&ed9 O" 8hen it came to implementing the new organi&ation, too much time was spent on processes and structure and far too little time on who was to do what" And more time was needed for implementation and re iew" It turned out, as so often happens in the wor% of change, that too much was in ested in planning and construction, and not enough in informing people and carr!ing out the wor%"