Structure Follows Strategy
I was recently in a Board Governance Committee meeting discussing expanding the board. The CEO presented us with a list of possible candidates and asked, “Who on this list should we add?”
Cue my mantra: “structure follows strategy.”
We can’t answer that question without first looking at the organization’s strategy and/or key priorities and determining what skills and experience are necessary for the board to achieve its goals. Do we need expertise in talent? Technology? Cyber Security? e-commerce? What are the major issues facing the firm? Are we entering a new market or geography? The answers to these questions will help us identify board members who can move our strategy and priorities forward. The point is that to perform at the highest level, the structure of the board must align with the company’s strategy.
In another recent board meeting, the topic of compensation was on the table. The results of an employee survey suggested that we review the company’s compensation practices.
Once again cue the mantra, “structure follows strategy.”
To design an effective compensation program, we need to first understand the business strategy. Compensation, after all, is meant to incentivize and reward the behaviors that lead to the company’s success. To design an effective compensation structure we need to understand what kinds of behavior will drive the desired results and thus, what we want to incentivize and reward. Should we put more compensation at risk to spur business development? Should we inspire people to work together across the company or reward individual performance? How might we motivate those who are excellent at customer service?
The same mantra applies to organizational structures as well. We often think of an organization’s structure as static and try to accomplish new goals within the confines of an old structure. Square peg meet round hole. When you put a new strategy on an old structure, you may begin to experience things like departmental silos, communication challenges and accountability issues. To be effective, an organizational structure must align with business goals. And more pointedly, an organization’s structure must shift when those goals change.
I recently attended an event where Mary Barra, CEO of GM, was the keynote speaker. She laid out GM’s long-term goals, “zero accidents, zero emissions, and zero congestion,” and talked about GM’s recent strategic acquisition of Cruise Automation, a San Francisco based company developing technology for autonomous electric vehicles.
“Barra and GM president Dan Ammann have been careful not to crimp Cruise’s style, or its startup speed. Doug Parks, who led the development of the electric Chevy Bolt, oversees GM’s autonomous efforts and serves as the critical conduit between Detroit and San Francisco. Part of his role is to protect Cruise from the mothership. “People at Cruise can go into the big company and pull out what they need,” Barra explains, “but the big company can’t come in unless Doug Parks knows what’s going on. It’s allowed us to keep the traditional things about a startup while giving them the great assets of a large company.””
–Fortune Magazine, May 23, 2018
Leadership quickly realized that for the tiny nimble startup to succeed, it could not be folded into the 180,000-person global company. It would die under the weight of the numerous processes and bureaucracy that supported the mature business’s structure. Instead, they kept the startup separate. They allocated plenty of resources but allowed for more flexibility and speed to innovate to achieve their goals.
Structure followed strategy. They optimized structure for success.
Whatever the structure or process you are considering, look first to your goals for guidance. And, as always, let us know if we can help.
