Figure 1: Checkside’s scaling curve

As any experienced mountain climber will tell you, knowing where you are and where you want to be by when is key to survival and having a well-developed and communicated plan is the key to success.

Having located your company on the Scaling Curve and looked with nervous excitement at the next highest peak, you can now map out an appropriate ascent. CEOs who plan to ascend the scaling curve whilst also investing in the maturation of their Management Operating System are the best prepared, most aware of the challenges and with the supporting internal machinery to emerge into the next scale-up stage with industry leading profitability, robust systems and high performing executive team.

Start-Up

“An organisation formed to search for a repeatable and scalable business model” [1]

Start-up CEOs thrive in organised chaos, dynamically building a product or service. The excitement of hiring and building a team that they trust and bond closely with compensates for the lack of structure, Management Operating System and policies and procedures. They know every employee, maybe even every customer and moving fast is adrenaline for the team. When success strikes how well prepared is the organisation to meet the demands of the more sophisticated customers, a larger workforce and how will the culture survive?

Scale-Up

“A transitional organisation built to develop the ability to execute growth and attract capital” [2].

Scale-ups have moved beyond the Start-up phase as they grow rapidly due to having found product-market fit and are creating economies and efficiencies through their scale.

Moving to Scale-up stage has its risks – crossing the ice crevasses from base camp to the next level is the valley of death for most Start-ups, so how do you survive? Having one foot in Start-up and one foot in Scale-up territory is a start and then slowly shifting the weight as the business and Management Operating System matures.

• A professional sales team and system is created
• Experienced employees are recruited to create processes and procedures
• Roles are more clearly defined, and accountability ascribed
• Strategy becomes an annual event, reviewed quarterly
• Management and finance systems and leadership skills are starting to be developed

 Professionalise

As companies mature their Management Operating System, its complexity and robustness increases, enabling them to weather more storms. CEOs of professionalised businesses have achieved this stage by developing and communicating a clear Scale-up and growth plan. Everyone in the organisation is engaged climbing the mountain.

At this stage the organisation has fallen into a rhythm of monthly, quarterly and annual meetings with a leadership team striving for accountability for their own outcomes and to each other.

• Sales channels are expanding
• Divisions and departments have their own aligned strategic plans and Objectives and Key Results (OKRs)
• Reporting dashboards and profit centre results are in place
• Policies and procedures are maintained and have consequence
• Poor performance is addressed, and positive achievements rewarded with bonuses supported by further investment in leadership skills and culture is ongoing

Enterprise

Of the very small number of companies which reach the Enterprise stage, most have a broader ownership structure, are operated by a professional leadership team (often independent from the owners/founders) and have the reporting, management and financial systems to support it as part of their advanced Management Operating System. From the Board down to shop floor, everyone is aligned on the strategy and their role in achieving the goals.

• Leaders understand the value of 1:1 coaching as they tackle new challenges and complexity
• Documented processes exist on an ERP platform
• Sophisticated reporting functionality and a rhythm of meetings to keep aligned and focused on the OKRs is in place
• Strategy is reviewed quarterly, and planning cascaded down to divisions/functions
• Culture is embedded and supports expansion to multiple geographies and business areas

No two companies’ journey is the same and moving up each stage of the curve can take 5-10 years or more. Checkside has guided hundreds of our clients over the years up many mountains, navigated treacherous valleys and helped those who have lost way get their back on track.  Planning the evolution of your Management Operating System is the key to successfully growing your business and maximising your shareholder value.

Helping our clients navigate the Scale-up Curve is part of our value proposition as trusted advisors and partners in success.

Contact us to talk about where you want to be on the Scale-up journey.
The Checkside Team

[1] https://www.imd.org/ibyimd/innovation/how-to-scale-seven-qualities-of-successful-scale-up-ceos/

[2] https://www.imd.org/ibyimd/innovation/how-to-scale-seven-qualities-of-successful-scale-up-ceos/

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Or put another way “structure must follow strategy”.

With the COVID-19 pandemic forcing many companies to rethink their business strategies – and in some cases necessitating radical changes – we have seen an increase in organisational restructuring initiatives in recent months.

COVID-19 sees a spike in organisational redesign activity

In the wake of the COVID-19 pandemic, many companies are being forced to make hard decisions on just how many people are necessary to get the job done.

The Department of Education, Skills and Employment states that 30% of companies have reduced staff since the onset of the COVID-19 pandemic. 28% expected to reduce staff in the coming months, while 22% stated they were ‘unsure’ of how they expected their staffing levels to change.

That leaves only 20% of companies with any level of confidence that current staffing levels would be maintained or would grow.

Having advised hundreds of Australian companies on organisational redesigns since 2005 (most notably in the wake of the global financial crisis), we have seen “the good, the bad and the ugly” of organisational restructures.

Common challenges that we have seen companies face over the last few months include:

• Current structures and/or talent not able to deliver the post-COVID strategy
• Inefficient, bloated structures which have evolved over time and need to be realigned with the post-COVID world
• Overly expensive structures (costs disproportionate to post-COVID revenues or funding) which need to be rationalised
• Too many middle-managers – but not enough leadership and accountability

It’s easier to summit Mt Everest than it is to successfully complete an organisational redesign

In the process of working on these engagements, I revisited a McKinsey article from 2015 which delivered the classic line “organisational restructuring is far more than just tinkering with lines and boxes”.

Given the heightened importance of organisational redesign in the post-COVID 19 world, we thought it appropriate to revisit some of the key insights provided by the article.

To start – let’s look at some frightening statistics on organisational redesign:

• 44% of organisational redesign projects are never completed
• 33% of organisational redesign projects fail to meet objectives or improve company performance after implementation
• Less than 25% of organisational redesign projects are successful

It’s easy to skim through those statistics without fully appreciating them. But when you consider that only 29% of attempts to summit Mt Everest are successful, it puts the difficulty of successfully complete an organisational redesign into perspective.

The nine golden rules of organisational redesign

McKinsey researchers studied 1,323 organisational redesigns and identified nine “golden rules” which can significantly increase the likelihood of success:

• 73% of the companies that followed more than six of the golden rules enjoyed successful organisational redesigns. These companies were six times more likely to declare success than companies that adopted just one or two of the rules.
• Following all nine rules in a structured approach yielded an 86% success rate

Rule 1. Focus first on the longer-term strategic aspirations

Companies should be clear from the start about what the redesign is intended to achieve.  This aspiration must be linked to strategy. This means assessing each structural decision based on whether it aides the achievement of your company’s key strategic pillars and operating processes.

Rule 2. Take time to survey the scene

Design casts the longest shadow. Taking the time to analyse the root cause of current pain points will reduce the risk of miscommunications that have to be walked back (i.e. over/underestimating the extent of the redesign) and/or revisited in supplementary restructures down the track.

Time invested upfront to fully explore, analyse and stress test the situation will save significant time and expense down the track.

Rule 3. Be structured about selecting the right blueprint

The field of organisational redesign has established principles, best practice guidelines and rules of thumb that should be carefully considered by leaders. Unfortunately, many companies base their new structures on untested hypotheses or intuitions. Established principles, best practice guidelines and rules of thumb all need to be considered and discussed in order to understand the right macro and micro-structure for each company’s unique mix of strategy, people and other assets.

Intuitive decision making can be fine in some situations – but this involves little pattern recognition, and there is too much at stake to rely on intuition in organisational redesign.

Interestingly, whilst many believe that benchmarking other companies and trying to adopt some of their structural choices might be an important ingredient of successful redesigns – there is no evidence from the research that it is.

Rule 4. Go beyond lines and boxes

A company’s “lines and boxes” are only one dimension of an organisational redesign. Companies that used a more complete set of levers to design their organisations were found to be three times more successful in their efforts than those that only used a few.

Going beyond lines and boxes means looking at areas such as a company’s operating (or accountability) system, seating arrangements, layout of communal spaces, work polices, processes, communication and performance management systems.

Rule 5. Be rigorous about drafting in talent

One of the most common—and commonly ignored—rules of organisational redesign is to focus on roles first, then on people. This is easier said than done. The temptation is to work the other way around, selecting the seemingly obvious candidates for key positions before those positions are fully defined.

Companies should be careful not to assume that any individual will ‘sit’ in a particular box until all boxes have been identified and performance profiles completed. The helps to avoid any forgone conclusions that may detract from ensuring that the right talent sits in the right seats.

Rule 6. Identify the necessary mind-set shifts—and change those mind-sets

Leaders of organisational redesign efforts too often forget the people element. Organisations are collections of human beings, with beliefs, emotions, hopes, and fears. Ignoring predictable, and sometimes irrational, reactions is certain to undermine an initiative in the long run.

Getting the basics of change leadership right is key. Communicating a compelling reason for change, role modelling the new mind-sets, putting in place mechanisms that reinforce the case for change, maintaining momentum and building new employee skills and capabilities will help drive towards a successful outcome.

Rule 7. Establish metrics that measure short- and long-term success

No sane pilot would fly a plane without a functioning cockpit display system, yet a surprising number of companies roll out an organisational redesign without any new (or at least specially tailored) performance metrics.

Simple, clear key performance indicators (KPIs) and objectives that focus on how a changed organisation is contributing to performance over the short and long term are vitally important.

Rule 8. Make sure business leaders communicate

Any organisational redesign will have a deep and personal impact on employees – it’s likely, after all, to change reporting lines, team structures, how work gets done, and even where they work. Impersonal, mass communication about these issues from “corporate office” will be far less reassuring than direct and personal messages from the leaders of the company, cascaded down.

Rule 9. Manage the transitional risks

In the rush to implement a new organisational design, many leaders fall into the trap of going “live” without a plan to manage the risks. Every organisational redesign carries risks such as interruptions to business continuity, employee turnover, a lack of engagement, and poor implementation. Companies can mitigate the damage by identifying important risks early on and monitoring them well after the redesign goes live.

Bringing it all together

Done right, organisational redesign involves the integration of structure, processes, and people to support the implementation of strategy.

These initiatives need to be supported by strong change leadership and communication.

Following the nine golden rules of organisational redesign described in this article will increase the odds of a successful outcome for your company.

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The reality of course is that the right structure will depend on a number of factors (and primarily your business strategy), but the core underlying functions of virtually every businesses are effectively the same.

How to choose the right organisational structure to achieve your business goals.

Understanding the key functions and where there are gaps and/or duplication points will help you prepare to choose the right organisational structure to achieve your strategy.  A key to achieving this is an understanding of the key differences between potential organisational structures together with the pros and cons of each.

Another critical piece to note is that as businesses grow and evolve, there remains a need to revisit your organisations structure to ensure it remains relevant to your strategy and provides an ongoing growth platform as opposed to a handbrake preventing successful growth.

Using the Business Value Chain model to assess organisational structure and capacity.

Our business value chain model (below) provides an overview of the typical core functions found within most organisations (across every sector), together with the common management support functions required in any growing business:

Figure 1: Checkside’s Business Value Chain for assessing organisational structure and capacity

What are the most common organisational structures?

The 4 primary organisational models include FUNCTIONAL, DIVISIONAL, HYBRID or MATRIX structures.

A FUNCTIONAL structure typically has functions (i.e. Sales, Marketing, Operations, Finance, IT, and Human Resources) reporting into the CEO or MD.  Each function is responsible for delivering on their functional area of expertise under the direction and strategic guidance of the CEO.

A DIVISIONAL structure typically sees the business structured along product or market lines. A division may be set up to focus on a particular customer segment or around different products.

A HYBRID structure contains a combination of functional and divisional elements. In this case you may structure your organisation with particular divisions based on products or customer segments however have some form of shared services across the business.

A MATRIX structure involves having a pool of resources that are drawn on to complete a finite number of projects. This involves having the core functions and a number of projects.

A key risk for many mid-market and emerging companies is that their structures evolve around the talent, capability and capacity that currently exists in the business rather than being designed around what the business actually needs moving forward to achieve its strategic objectives.  The exercise of assessing the most appropriate structure for your business is critical as it goes directly to the ability to execute your strategy and drive performance.

It typically requires some expert help to not only assess the most appropriate structure that is best suited for your business right now but determine your key capacity ratios to guide resourcing changes and a workforce plan for your future growth.

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