Defining the Best Organizational Structure for Your Business
Contributed by David Shaffer
Over many years of working with small to medium size businesses, particularly those looking for, or experiencing growth, a common theme has frequently emerged; one of assuring that the infrastructure of old is robust enough to match the demands of today. A misaligned organization can result in declining customer service, quality, profitability and employee satisfaction levels. It can destroy a company’s growth trend no matter how much potential exists for the business.
We have often heard such phrases as “in the good old days”, or “life was much simpler when, or “how can we be down in profits when our sales are growing?”
In order to tackle these common, yet difficult scenarios, this article provides a framework for taking the proactive steps necessary to align the organization to the strategies of growth. The points listed below represent a roadmap of activities that a company should consider to move from its current organizational and operational structure to what is known as a Target Operating Model (TOM). By following this roadmap, organizational realignment and growth are controlled, measured and profitable. Through the identification of the TOM, the company is focused on defining an infrastructure and corresponding processes that support growth rather than one that consumes the revenue at a faster pace than revenue is generated. There are two things to consider before you start.
Effective Strategic Planning
The entire process starts with effective strategic planning where the framework for growth is tested against the mission, vision and values. For smaller businesses, particularly family or privately owned, it is essential that the culture that helped start and move the business to this point be retained. Within the strategic planning process is the definition of the TOM along with an objective: an honest and fair assessment of the current infrastructure and organization. Consider the existing organization and the TOM as two ends of a spectrum and the outcome of the planning process is the development, prioritization and management of the actions necessary to close the gap.
Effective Use of Existing Personnel
Too frequently companies take an inventory of existing personnel and attempt to force fit an organization by leveraging the skills of these existing personnel. An alternative, and one that will undoubtedly lead to long term success, is to define the organization within the TOM that best meets the business opportunity. Once defined, existing personnel can be slotted into the organization. Where required skills are missing, interim positions can be filled while either skills are developed or appropriate hiring takes place. If the interim positions outnumber the available skills, then the TOM can be implemented in phases minimizing disruption to the business and allowing time to focus on prioritizing the best leverage opportunities.
The Process: Defining Your Target Operating Model (TOM)
The success of the process is measured through implementation correlated with defining key action items. One means of effective implementation is the development of “Charters” whereby budgets, action steps, milestones, responsibilities, resource commitments and accountability are documented and reviewed at management meetings. It is important to limit the number of charters to a manageable size and to segregate charters into short and long term plans. Again, the key is to focus and address any gaps between current and target operating models.
The following are general steps that integrate the strategic planning process into the definition of the TOM leading to the defined actions within the charters.
- Definitive Statement of Vision, Mission and Values
- Financial Targets & Models for the Next 3-5 Year Period with Emphasis on Years 1-3
- Revenue sources
- Compensation Considerations
- EBITDA Measurement
- Budgeting – best case, most likely, and worst case considerations
- Target Operating Model that Includes
- Organizational Considerations
- Roles and Responsibilities
- Performance Measurement – quality, professionalism, goals and objectives
- Delivery Mechanisms
- Product Development (IP)
- Management Reporting
- Information Management Considerations
- Revenue Generation
- Sales Methodology and Process
- Best Practice – Lead Management & Follow-Up
- GAP Analysis
- Current Versus Target
- Strengths, Weaknesses, Opportunities and Threats (SWOT)
- Sales Strategies and Practices
- Key Action Items
- Growth Initiatives – long term evaluations and considerations
- Critical Few Initiatives – short term action items
- “Charters” – Initiative definitions including time frames, actions, costs and responsibilities
- Management System to Monitor and Control Initiatives
During a meeting with a client, the CEO remarked that life was much simpler when the firm was small and control was always through his office. He knew everyone, was involved in every decision and customers could count on him. With rapid growth in sales, much of this began to fade and there was a feeling that the infrastructure was growing faster than revenue. Certainly it was great to know that the top line was growing, but the expense was too great in quality, direct costs and ultimately, customer service.
By establishing a TOM and turning his attention to aligning and establishing the most effective infrastructure, his firm returned to the attributes that made him successful. On the surface it may seem tedious and frustrating to step back and follow the process, particularly when there is a feeling of stress associated with the symptoms outlined in this client’s story. However, taking the time, laying out the strategy and closing the gaps will pay extreme dividends in the long run.