Redesigning org chart to mobilize talent

McKinsey author offers plan to break down silos, harness knowledge in large firms
By Uyen Vu
|Canadian HR Reporter|Last Updated: 06/12/2008

Redesigning large organizations:

In May, the Strategic Capability Network (SCNetwork) hosted Claudia Joyce, a principal at McKinsey & Company, at its monthly breakfast event in Toronto. Joyce is co-author of

Mobilizing Minds: Creating Wealth from Talent in the 21st-Century Organization

, a book that explores ways to redesign accountability structures, financial incentives and knowledge and talent management systems so large organizations can better harness talent. For more information, visit

www.scnetwork.ca.

Redesigning org chart to mobilize talent

Organizational design for 21st century

SCNetwork’s panel of thought leaders brings decades of experience from the senior ranks of Canada’s business community. Their commentary puts HR management issues into context and looks at the practical implications of proposals and policies


Redesigning org chart to mobilize talent

Market expansion. Better product development pipelines. Improved customer service. These are the types of strategic options business leaders often weigh when thinking about taking an organization to the next level.

The organizational chart doesn’t usually come to mind as a strategic differentiator. But organizational design is exactly what Claudia Joyce would identify as a strategic imperative. And that’s because organizations have to do better at harnessing talent, said Joyce, a New York-based principal at consulting firm McKinsey & Company and co-author of the book

Mobilizing Minds: Creating Wealth from Talent in the 21st-Century Organization.

She was in Toronto last month to give a presentation at a breakfast event organized by the Strategic Capabilities Network.

In the 21st century, it’s the mobilizing of intangibles — talent, knowledge, reputation and relationships — that puts a company at the top. But take a scan through any given organization. How many people are in roles that don’t make the most of their skills? How many great ideas are lost because the regional office has to meet its quarterly earnings and staff can’t be freed up to develop the idea? How many people have to go to a competitor for a chance to bring out their potential because the boss finds them too valuable to let them take another position in the company?

Nine big ideas

Joyce and co-author Lowell Bryan’s vision of the 21st-century organization is built around nine big ideas. The first three are about managing better, the next three are about improving the flow of intangibles, followed by two ideas on motivating better behaviour. The final one is on how to put it all into action.

Managing better

When it comes to managing better, Joyce begins with an accountability structure she calls “backbone line hierarchy.” In essence, it’s a response to a problem in large organizations that have let a matrix accountability structure emerge as they grow.

“Some of the companies I work with are unbelievable. They have three different bosses — the geographic boss, the product boss and the customer segment boss. It’s no wonder you can’t get a decision made because you’ve got to keep all three bosses happy. It’s either that or by the time you go up and down and across the matrix, it just takes forever,” said Joyce.

In a backbone line hierarchy, managers are accountable only for what they have authority over. So if a regional bank manager had responsibility for profit and loss numbers but no authority over the credit card person for that region, then in Joyce’s redesigned organization, the numbers for that segment would be taken out of the regional manager’s profit and loss statement. The “shared utilities” such as IT and human resources are then centralized and placed either at the corporate level (in the case of IT and finance) or at the business unit level (in the case of marketing and HR).

Strengthening the structure is the idea of one-company governance, built upon a powerful CEO and a partnership among the top executives. Goldman Sachs is a good example of this, where there’s a “feeling among the top cadre of a partnership. That has changed the mentality of those individuals. Not only are they individually accountable for what they do and what they need to generate but more than that, it reinforces that sense of mutual accountability.”

With a powerful CEO and a partnership at the top, what follows is a one-company culture that is critical for standardizing roles and values throughout the organization.

Another component of managing better has to do with what Joyce calls a “dynamic management strategy.” That refers to a disciplined approach to managing resources that gets away from the constraints of silos and quarterly earnings. This approach is modelled after the way private equity firms manage investments. At any given time, the company may have 15 different initiatives with different potential payoffs at different timelines, and the way to manage them is to have clear guidelines on when to put more money in one initiative and when to pull the plug on another.

“What’s important about this is the portfolio is owned by that partnership of the most senior people,” said Joyce. “Some of the things in the portfolio are not going to be in any one business silo. Some of them will be across business silos and so it has to be jointly owned so that you can say, ‘Where do we put the best people and what are the pieces of the portfolio that are really big opportunities for us?’ By doing it this way, we force the dialogue and force the discussion.”

Improving the flow of intangibles

The second set of ideas, on improving the flow of intangibles, includes formal networks, a talent marketplace and a knowledge marketplace. In order for the talent marketplace to work, performance evaluations have to be consistent and based on competencies, roles have to be standardized across the organization and the protocols for placing individuals in temporary or permanent assignments have to be clear.

Joyce describes it as “a job posting system on steroids” and the difference is a culture of mobility that permeates the organization. In that culture, “there’s an expectation on the boss that what they have to do is develop talent and then they have to let it go,” she said. If they don’t, they’ll have a hard time attracting talent the next time, she added.

Knowledge management is another important component of how 21st-century organizations improve the flow of intangibles, but Joyce didn’t use the term to refer to the unwieldy databases that have given knowledge management a bad name. Instead, she spoke holistically of a “knowledge market” in which “supply” refers to the experts within the company and “demand” refers to those who are seeking out knowledge on a firm-wide, just-in-time basis.

Facilitating the exchange between supply and demand in this market are knowledge brokers, who are research professionals or individual facilitators with a very deep understanding of who the experts are in the company.

Motivating better behaviour

In the third category — how to motivate better behaviour — Joyce spoke of redesigning financial performance metrics by adding, for example, the category of profit-per-employee.

“We just think it’s an effective way of thinking about how you are leveraging talent,” she said.

She also suggested removing certain numbers, such as overhead allocations, from profit and loss numbers.

Performance evaluations have to be based on role-specific criteria that are applied across the organization. This requires standardized roles throughout the enterprise, which reinforces the one-company culture. Evaluations have to also motivate collaborative behaviour, especially in the upper ranks, where Joyce would recommend a committee evaluation approach.

Putting it into action

The final step is putting this organizational design into action. Fully aware that an all-encompassing change such as this can easily run aground due to paralysis, Joyce recommends a five-year plan beginning with change implemented in a small part of the organization, to serve as a prototype.


Coming soon

Want to attend one of the upcoming SCNetwork Breakfast Series in Toronto?

July:

Culture and leadership, with Sherrill Burns

August:

Team lessons from sports, with Scot McFadden, sports psychologist of the Dallas Stars

September:

Leadership – Beyond the Individual Leader, with Vince Molinaro and Liane Davey

Visit

www.scnetwork.ca

for more information.

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Organizational design for 21st century

SCNetwork’s panel of thought leaders brings decades of experience from the senior ranks of Canada’s business community. Their commentary puts HR management issues into context and looks at the practical implications of proposals and policies.


The Zen of a matrix on steroids

By Dave Crisp

Wow. Claudia Joyce made a terrific run at a very difficult, dry subject — how to structure organizations for maximum results amidst increasing complexity. Her McKinsey book marks the third brilliant contribution I’ve heard from that company in two years.

Here is Joyce’s core premise: Complexity pushes us toward a weak matrix where many middle and upper managers report to more than one boss, typically both a line and a senior functional person. In human resources, we often see field HR reporting to field operators and to someone in head office. The result, frequently, is they complain to each boss that the other’s requirements cause them to miss targets. No one is fully satisfied. Individuals become less accountable. We work in silos, pleasing whichever boss controls our paycheques and promotions most directly.

Breaking down silos may be our ultimate challenge. But how? The constant drive for short-term goals and the need for each division to meet its own targets to the exclusion of others get in the way. Joyce’s answer, tested in practice, is to bring back a strong backbone of reporting to just one boss, but with a twist — make a significant component of pay and promotion for more senior managers based on the requirement that actions must help the overall organization function better. Still sound like a matrix? Yes, but without a specific second boss, it creates a culture of responsibility throughout the whole organization.

Rather than a second, non-line boss, she would structure evaluations so a committee or 360-degree process evaluates success on long-term goals — development of people, sharing of talent and co-operation on projects. Peers, reports and more senior executives — a selection of the whole company — would do a substantial part of an employee’s appraisal. Make this increasingly large as you go up the ladder — zero per cent at the bottom rising to 30 per cent at the level below CEO, is her best estimate — and consistently favour those who foster a culture of teamwork.

The most important people who need to play as a team are the ones at the very top. Managers have to coach and develop, not just bark orders, otherwise an organization will undoubtedly lose its best people. People have to participate because when they need the best from someone else they can only hope to get it if they’ve played the game fairly and this is how everyone in the organization plays.

Dave Crisp is SCNetwork’s lead commentator on leadership in action. He shows clients how to improve results with better HR management and leadership. He has a wealth of experience, including 14 years leading HR at Hudson Bay Co., where he took the 70,000-employee retailer to “best company to work for” status. For more information, visit www.CrispStrategies.com.

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Hierarchy not so bad

By Barry Barnes

The work of Claudia Joyce and Lowell Bryan speaks to the issue of why 20th century organizational design does not function well in the 21st century. We’ve moved from organizations set up to manage tangible assets to organizations that create value by the use of intangible assets. Their work focuses on how to overcome the issues that are restraining organizational success in the knowledge and global economy.

The nine key concepts they suggest (see article on page 8) as the basis for reorganization to generate wealth are in and of themselves somewhat complex, and address issues of size. The core concept is improving collaboration between intangible assets — talented people, their knowledge and their networks.

Meetings Around the World: The Impact of Collaboration on Business Performance

, a study of 2,000 companies conducted in 2006 by consulting firm Frost and Sullivan and sponsored by Verizon and Microsoft, found “collaboration is a key driver of overall performance of companies around the world. Its impact is twice as significant as a company’s aggressiveness in pursuing new market opportunities (strategic orientation) and five times as significant as the external market environment (market turbulence).”

Joyce argues that following her principles will eliminate the confusion that comes from multiple managers and rapid communication. Her book is a call for large companies to reduce complexity to have small company characteristics.

Small organizations have problems too, but their flexibility and responsiveness comes from their size. It comes from a limited number of layers, the closeness of the CEO to the customer and a more collaborative working style, often a necessity in small firms.

Joyce suggests as few levels of management as possible for the mobilized organization. Back in the 20th century, Elliott Jaques and Wilfred Brown had already determined most organizational structures were dysfunctional. They proposed eight layers from the top to the front line was all that could ever be needed and most large organizations could function with five or six.

Hierarchy is everywhere in nature. It is a natural form of organization. But it needs clarity and formal structure to be flexible and responsive. Joyce and Bryan have proposed an effective prescription that appears more simple than complex — yet I suspect the opposite is true — to assist large global organizations to compete and succeed effectively.

Smaller organizations by their very nature already incorporate many of those principles. Tackling large organizations first, Joyce and Bryan may have demonstrated organizational design on a very large scale and have successfully scaled up the characteristics of smaller organizations in a unique fashion.

Barry Barnes is SCNetwork's lead commentator on organizational effectiveness. He is executive vice-president of ESOP Builders, a firm that develops employee-share ownership plans for private Canadian enterprises. He is also president of The Crystalpines Group. He can be reached at barry@esopbuilders.com or barry@thecrystalpinesgroup.com.

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The new OD primer

By Matt Hemmingsen

Almost 20 years have passed since Elliott Jaques set the standard for defining the structure and organization of work by challenging the fundamentals of organization design (OD). His approach linked leadership, work and resourcing into a unified whole for the “requisite organization.”

Over the years, in their efforts to respond to changes in the economic, environmental, political, social and technological landscapes, organizations have mistakenly introduced additional and unnecessary layers of complexity. They have become rigid, tired and slow to respond to new opportunities.

With the fundamental shift in the economy from labour to knowledge-intensive organizations, the time is right for new thinking to build organizational sustainability and wealth. In

Mobilizing Minds

, Lowell Bryan and Claudia Joyce have presented a unique and compelling model — the basis for the new OD primer. Inherent is the recognition and acknowledgement a company must be agile and flexible. It must enable and empower its people to create and share knowledge freely through the appropriate blend of hierarchy, collaboration and accountability.

The challenge is striking that right balance, the elusive, correct mix of the three. This starts at the top with the CEO. By holding executives accountable to a defined framework of corporate governance and culture, companies can begin the process of establishing the needed networks to “build and exchange both personal and collective knowledge” and “to discover new wealth-creating strategies.”

Organizations talk endlessly about the need for collaboration, but how much attention is paid to discussing the intricacies of effective working relationships? In a post-presentation discussion, Joyce admitted this was, indeed, a key gap.

Working collaboratively requires “leaders” at all levels who can guide and support the generative process. This leadership is no longer the tradition-bound, power-based, top-down hierarchy but rather a horizontal, integrated, empowered community. The way organizations engage people, build the frameworks for collaboration and hold them both individually and mutually accountable will determine whether they are able to create wealth from their talent.

The premise of

Mobilizing Minds

is that long-term success requires “corporate strategies that focus on organizational redesign.” Despite the absence of how to “instil” collaboration and build healthy workplace relationships, its ideas are sound and deserving of its place as the new OD primer.

Matt Hemmingsen is SCNetwork's lead commentator on strategic capability. He has held senior HR leadership roles in global corporations. He is a managing partner with Personal Strengths Canada, a member of an international company focused on improving business performance through relationship awareness. For more information, visit www.personalstrengths.ca or e-mail mhemmingsen@personalstrengths.ca.

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