Company organization
Building an optimal organization is an uneasy task. It is different for small and medium-sized enterprises, different for large companies, and yet different for multinational corporations. The common denominator is that it needs to be optimized to the business concerned. Every surplus of staff, duplication of functions, formation of “companies within the company” results in an increase in costs for which someone has to earn money.
I am a fervent proponent of common competence centres. Take out all those elements of your organization that have identical tasks and required skills and set up common competence centres. Software development or project management are good examples. Of course, you will be faced with arguments that division heads lose control over projects, that they have more difficult access to specialists, and that they cannot take full responsibility for a project.
All these are “well-sounding arguments” intended to build their own autonomous environment with full power. Division heads tend to see any function sharing arrangement as restricting their power, forgetting about teamwork, which is the key to the company’s success, and about specialization, which is essential in today’s extremely competitive business. What is the difference between a programmer or project manager based in a division and one in a common competence centre? The difference is that in the first case they are busy when there are projects, or “warm the bench” if there are none, generating unnecessary and unreasonable costs. At best, they may be moved to perform other tasks that are inconsistent with their competence, a practice euphemistically called “competence expansion”. By contrast, in the other case, they always have work to do, under one project or another.
In a common competence centre, competences can be built in a controlled manner so as not to lock specialists up in a narrow area of expertise and to provide them with wider knowledge and practice. Then, in the face of a changing market, the development of some sectors and the shrinking others, the team can be adapted and changes can be accommodated quickly.
In one of the companies for whom I had the pleasure to work, I was asked to perform restructuring because of excessive costs and low business effectiveness per employee (e.g. average profit and revenue per employee). In carrying out this assignment, I noticed that line divisions formed companies within the company, with all internal functions in place except HR and marketing (internal marketing actions being undertaken anyway). In addition, it was difficult to determine what exactly the employee was preoccupied with. A programmer might at the same time be a project manager, a project manager might be a sales representative, and a sales representative might actually be reduced to the role of assistant, and not a very busy one. The incentive system motivated project managers to sell rather than implement projects within deadlines and on budget. As a result, the implementation of virtually all projects was delayed, cost budgets were exceeded and sales were poor. Everyone did everything and no one was responsible for anything. The cost level was killing profitability. All responsibility was placed with the board.
I opted for a very deep restructuring process where everyone was individually responsible for their tasks and results, and which provided for specialization (common competence centres) and separated the sales function from the implementation of projects. I have always believed that the sales representative should run around the market so quickly that they had to replace worn out shoes with new ones every quarter and the project manager should lead projects so as not only to complete them on schedule, but also to deliver cost savings on the budget and thus to improve profitability against the plan.
Of course, I had to withstand high pressure from the employees pushing their case as I have written above. In response, I presented the company’s P&L showing that if we did not carry out the restructuring, disaster was only a matter of time.
By the way, it is amazing how employees get used to the status quo and fail to see threats ahead.
The restructuring was carried out within two quarters. And what happened? Nothing special happened except that employment was reduced by 15%, costs were reduced by tens of millions, the company’s financial result was improved and employees started doing what they ought to do, taking responsibility for this. And all this without any harm to ongoing projects.
Photo by rawpixel on Unsplash
