Time for a Change – designing a successful organisation

Four Pillars is happy to welcome new guest blogger, David Kemp, recently Vice President-Supply Chain at the Engine Control and Electrical Systems division of Goodrich Corporation, a former Fortune500 aerospace and defence contractor.  David has always been passionate about organisation change and, here, he shares his experience and some hints for those actively considering or designing their latest organisation re-shuffle.

Last year was one of great change in my life, with the mega-merger of Goodrich Corp into United Technologies (UTC).  UTC saw real value in combining the companies but, inevitably, the merger had (and still has) implications for optimising the new combined organisation structure.  Of course it was down to the management in each sector to work out how to integrate and combine the organisations into effective operating units and, with tens of thousands of people involved, it will be a multiyear project to complete the integration and take out the layers and interfaces that are no longer seen to add value to the bottom-line.

This merger event got me thinking about the process of how companies can go about merging structures in a way that retains the best of both, with an emergent structure that most effectively addresses the goals of the new organisation. I’ll start with the most basic, yet crucial, question.

What is the purpose of the organisation?

In building an organisation, it is all too easy to start with the people that you have, and then try to construct jobs around them.  Whilst this might be appropriate for a very small number of very high-flyers, it is a recipe for inefficiency and even confusion across a wider population of people.

Typically an undermanaged, poorly-designed organisation structure will have evolved into a myriad of titles, overlapping roles, and the inevitable gaps in accountabilities. A more systematic approach is required in order to achieve a better result for your business.

To tackle organisation design effectively, first consider the fundamentals:

  • What is the organisation for?
  • What are the inputs and outputs to the various teams?
  • What are the business processes that it operates?

These basic questions can be harder to answer than may first appear, especially where the subject is a particular department or a function integrated into a larger business unit, with multiple interfaces.

So starting at the beginning, understand your processes.  For a value stream, there is sourcing and supplier selection, sales and operations planning, transactional management, MRP or ERP, supplier relationship management, pull systems and KanBans, inventory management, new product introductions, quality, distribution, and customer relationships.  And don’t forget to consider the regrettable return loops – non-conforming products, customer returns and so on.

Different processes require different types of people with different competencies and knowledge.  It is therefore sensible to group the processes around the flow of product or information, and around the common people attributes that you will need.  And some tough decisions will need to be hammered out as to the policy for the organisation – how do you want it to work?  So for example, is it best to place a quality professional at every process point, sourcing, receiving, manufacturing, distribution etc, thereby facilitating the flow through the factory, or is it better to have a centralised quality department?  A highly experienced and capable team of professionals may well be best distributed around the processes, a team in need of up-skilling and strong functional leadership may be better to hold centralised for a while.  There is no definitive answer, but the important thing is to decide how you want to set up and lead the organisation.  Make unambiguous decisions on its design rather than allowing the thing to evolve in a chaotic manner.

What size of organisation is needed?

Having understood the processes and the capabilities that you need to operate them, now is time for the thorny question of how many people are needed? (which is often the only question that the boss cares about!).  Gather as much hard data as you can, interrogate your ERP systems for transaction counts, SKU’s, Bill of Materials analysis and so on; really dig into all dimensions of your business.  If you can, seek out external benchmarks, being ready always for the cry of “We are different here…..”  Of course things are different, but the good use of benchmarks to inform decisions has to be better than arbitrary targets simply set as internal challenges.

Another problem to avoid is allowing too many small ‘spans of control’ (the number of people a particular manager will be responsible for), with their consequent escalation in interfaces, communication complexity, and process inefficiency.  Calculate the resource levels that you need and set them into groups such that each manager has a limit of eight directly-reporting individuals. You may have to adjust the process analysis to ensure that this structural goal is met, but it will most likely be worth it.  And take a hard line towards any proposed one-on-one or one-on-two reporting lines.

The finishing touches

Create clear and meaningful job roles and titles.  Consider carefully what you want the people to do in the new organisation model, and manage the proliferation of descriptors such as manager, leader, officer, head of…., director etc.  It is of course important that every individual ends up knowing his or her role, and equally-important is that everyone understands the roles of others, and where the hand-offs need to be made.  The job title, often dismissed as an irrelevance at an individual level, is actually important in growing the understanding of the whole team as to the purpose of other people’s positions as well as their own.  Personal egos will inevitably come into the discussion around this issue, but address them directly and fairly across the whole team to avoid overlapping titles or a lack of clarity as to where process ownership and people leadership is expected.

To conclude: step one is always to understand your processes.  Then for step two, group them into logical areas to optimise flow and the use of resources.  In step three, design the organogram and, finally, work to assign individuals to the roles that they are best suited to.  If some don’t fit so well, then first thoughts should be about re-training and support, not compromising the shape of the structure that you have so painstakingly designed, or allowing it to regress back to the place from where you started.

Organisational redesign can be a complex challenge, fraught with difficulties in matching skills to business processes and, it’s a political minefield.  Constantly referring to the required business outcomes of the organisation will help those involved in the design stay on track throughout a period of significant change and go a long way to ensuring the re-organisation is a successful one.

 

David Kemp has held a number of senior roles in Procurement and Supply Chain, most recently as Vice President-Supply Chain at the Engine Control and Electrical Systems division of Goodrich with accountability for direct and indirect materials. Prior to this, he spent over 30 years developing his expertise in purchasing and supply chain management at Rolls-Royce, holding Executive positions for 12 years until joining Goodrich in 2009. He is considered expert in leading and managing complex supply chains, negotiations management, effective global team working and supply chain strategies.

He has delivered transformation programmes, major commercial agreements, new projects, and extensive work in developing worldwide supply chain organisations.

David became a Fellow of the Chartered Institute of Purchasing and Supply in 2002 and was elected to the Board of the Institute in 2008. He now serves as a trustee of CIPS pension fund. He is also a Fellow of the Chartered Institute of Logistics and Transport, and a Fellow of the Royal Aeronautical Society.  David can be contacted via Four Pillars or at www.dkglobalconsulting.com

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