Organisational Change Management Volume 1

Framework 56 Change Driven by Decision-making

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Introduction

One of the most common ways to change is to re-structure the organisational chart. Yet a survey covering 57 re-organisations (2000 to 2006) by Bain and Company shows that most organisations derive little benefit from reorganizing the 'org chart'. There is a misunderstanding about the link between structure and performance. Organisational structure is not an accurate predictor of the quality of decision-making or financial results.

These structural changes can be expensive as they involve changes in decision-making, incentives, information flow, performance metrics, processes, etc. These need to be aligned for the new structure to work. Furthermore, re-structuring involves 'assigning turf' and redefining reporting lines within a hierarchy. Thus there is much horse-trading/power struggling, etc which can result in decision-making not occurring at the most appropriate level of the organisation. This can increase the complexity in the organisation's infrastructure. Thus staff can end up with responsibilities defined too narrowly or too broadly. If too narrowly, there is needless hierarchy, ie too many watchers and too few doers, and can encourage micro-management. If too broad, there is insufficient supervision and limited accountability.

There is a strong link between performance and decision-making. Furthermore, performance is not only determined by the nature, scale and use of resources.

It has been found that organisations that were the most effective at decision-making and execution generated average total shareholder returns around 6 percentage points higher than other organisations. Decisions are best made through the prism of sccountablilty, responsibility, effectiveness and efficiency.

An organisational re-structure will only improve performance if it improves the organisation's ability to make and execute key decisions better and faster than its competitors

Elements of Decision-making

Quality (whether most decisions proved to be right)

Speed (whether decisions were made faster or slower than competitors)

Yield (how well decisions were translated into action)

Effort (time, trouble and expense required for each key decision)

Types of Decision-making

There are 2 types of critical decisions, ie

i) individual decisions that have a significant impact, eg large, multibillion dollar capital investment in infrastructure

ii) a sequence of "minor" decisions that accumulatively have a significant impact, eg merchandising, marketing, pricing, etc decisions that are relatively minor individual decisions that together can have a major impact

Audit

There is a need to make a decision-making audit to determine at what organisational level decisions should be made and executed to create the most value. In other words, aligning your organisational structure to where the critical decision-making is best made and executed. This involves 6 steps:

i) Identify key decisions - what are the critical decisions that need to be made and executed for the success of the organisation?

ii) Determine where in the organisation those critical decisions should be made - once identified which decisions are critical, categorize them and determine where in the organisation these decisions are best made and executed, ie

"...This requires an unbiased assessment of the benefits of scale and coordination vs. the benefits of tailoring to local needs and staying close to the customer. In which decisions is a critical factor? Which decisions are better made by business units or functions? Which need coordination across many businesses?..."

Marcia W Blenko et al, 2010

Generally, big capital item decisions are made at head office, while decisions related to IT, products, customers, pricing, etc are harder to allocate. Helpful principles in allocating apt levels for decision-making are clarity and simplicity.

Focus on where critical decisions are best made, regardless of organiational status, ie 'decision nodes' (the interface between regions, functions and layers required to make and execute critical decisions).

iii) Organise the structure around where the critical decisions are best made

iv) Determine what level of authority decision-makers need

v) Align elements of organisational systems and processes around decision-making systems and processes include information flow, incentives, etc

vi) Develop skills and behaviours so that decisions are made and executed effectively and efficiently

Summary

"...When re-organising an organisation, decisions rather than structure should be the focus..."

Marcia W Blenko et al, 2010

(source: Marcia W Blenko et al, 2010)

 

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