View from the Lighthouse - Coastwise Consulting

View from The Lighthouse is the semi-quarterly electronic newsletter of CoastWise Consulting, Inc.

This issue focuses on the effects of the downturn and downsizing on organization design and infrastructure and how failure to attend to this aspect of the organization can contribute--often in hidden ways--to already difficult times. We also identify some symptoms that you may be experiencing infrastructure-related problems, look at the associated risks, and suggest some steps you can take to protect your organization.

It also contains suggested readings on this topic and pointers to relevant websites and/or additional resources.

Each issue focuses on a topic or theme relevant to CoastWise Consulting's mission:
To create a competitive advantage for our clients by leveraging the

But this is clearly not the case, and "they" were wrong. Instead we see the fallout from executive and corporate malfeasance, further reductions in operational and capital spending, continuing signs of domestic and international uncertainty and instability, and short cycles of stock market bargain hunters and profit takers. There's a lot less prognostication now.

In an organizational context, the progressive response to the need to reduce spending in a downturn, especially one that's not going away, is familiar and predictable: cut discretionary spending (travel, training, consultants, non-production supplies, often by adding complex spending approval loops), reduce output and inventory (canceling orders with suppliers, elimination of overtime, shutdowns and reduced work weeks, required use of vacation time), delay or cut capital investments, postpone or reduce salary increases, cut or eliminate bonuses.

Typically, if a company has been well managed and has some degrees of freedom, the last things to be cut back are R&D spending and the size of the workforce. R&D is the innovation lifeline of every business, and in employees resides the experience and knowledge base that, once lost, can't be replaced. And restaffing once the recovery comes is expensive in every way.

But when spending has been wrung out as tightly as possible and it's still not enough, then the remaining big ticket item is payroll overhead. Even a casual review of the business press reveals that very few companies have escaped doing layoffs--by whatever name they may be called.

THE PROBLEM: In addition to the obvious consequences of all this cutting back, there are some that are less apparent: every one of these steps has an impact on the organization's infrastructure and its ability to carry the operations and perform the core work of the organization. In this context, infrastructure is that combination of resources, processes, policies, structure, values, norms, and culture that is the underlying foundation of the organization. It's the basic system or framework on which your organization is built and operates. Every organization has one. Infrastructure is frequently overlooked and undervalued--in fact, many people simply take it for granted, not understanding its importance and how it supports and enables the operation and sustainability of the organization. In times such as these, when companies are dealing continuously with major problems, infrastructure and organization design are even more likely to be ignored.

The best infrastructures are ones that have been carefully and thoughtfully designed to match and enable the strategy of the organization. Even the ones that have evolved like Topsy have certain structures, processes, and associated people requirements that define how the business runs. As various forms of cost cutting take place, most especially reductions-in-force, the fundamental integrity of the infrastructure is impaired. It needs to be robust enough to carry the weight of the day-to-day requirements as well as to withstand the sudden or occasional demands placed on it. The protracted stresses and impacts of the current downturn have created unusual and not well understood set of conditions. If it's not robust and adaptable enough, then it will gradually deteriorate along with the enterprise that it's meant to support. Because it operates in the background, problems with it may go undetected until the effects have disabled the organization.

THE SYMPTOMS: Here are some clues that you are probably having infrastructure problems:

Longer cycle times for all processes: There are both formal (process-driven) and informal (relationship enabled) ways that work gets done. Jobs are generally constructed to make people responsible for certain steps and deliverables that are part of a larger process or result, sometimes as individuals and sometimes as members of teams. They usually make those things happen in collaboration with others or complete their piece and pass it on to someone else. When people are laid off, they are, in effect, pulled out of the middle of some process(es), and the informal relationships are also disrupted. Even though it's usually the low performers who are the first to go, these people were, after all, doing some work and making a contribution. With each successive layoff, more talented and knowledgeable people leave. Chances are that no one has thought through the possible consequences at this level and figured out how to modify the process. It takes a while to realize that things aren't working as well as they were before. Things take longer--from making decisions, to paying invoices, to negotiating contracts, to developing new products . . .
Higher rates of errors/rework: The disruption of processes and relationships as well as the increased workload of the survivors contribute to errors, the need for rework, and dissatisfied customers. Errors and rework cost money and take time. Unhappy customers are always a problem, but these days we all need all the customers we can get, and they have a lot of choices among hungry suppliers.
Reduced productivity: There are many sources of (undesired) reduced productivity in addition to those mentioned above. Ultimately, a process that was designed to be run with a certain number of people, has not been modified or adapted, and is now being run by fewer people will yield less of whatever it outputs.
Increased absenteeism, more walking wounded, and other signs of burnout and morale problems: The phenomenon of "survivor guilt" after a layoff is well documented. Add to this increased workloads for them, the effects of process disruptions, doing more with less, wondering if they're next, etc., etc., and you're likely to be having employee problems. There's a strange paradox going on as well--although many are tired, stressed, and unhappy, they are also glad to still be employed. So some of these problems are not surfaced, because employees are scared and worry that if they make "trouble," they'll be at the top of the next list. Several clients have said to me that their company is "lucky" to be in the midst of a downturn, because if the economy were better people would be leaving in droves.

THE RISK: Structure--the lines and boxes, reporting relationships, and interdependencies--is only one component of the Organization Design process, but frequently it's assumed that it's the only thing. There are four other components, and they are Strategy, from which design criteria emerge, Processes, People, and Rewards. Since they comprise an interdependent system, any time there's a major change that impacts any one of them, it's necessary to assess, and if necessary, redesign and re-fit all of them. Most organizations have experienced significant changes in all of these areas. But the effects and implications of the changes often go unexamined and/or get addressed discretely.

When the changes are enormous, frequent, and recurring, as they have been in the last couple of years, the risk is that an infrastructure that's not redesigned to comprehend the changes will be unable to carry the "weight" of the organization. It gets more and more difficult to get work done, and the symptoms that emerge are not necessarily recognized as infrastructure problems, so the fixes don't work.

When businesses fail, the apparent cause is most often financial (or more recently the activities or collusion of executive management). But having an infrastructure that's misaligned or decimated, while less obvious, is extraordinarily costly and contributes to financial problems. It also contributes to gridlock that can strangle innovation and destroy morale.

SO WHAT TO DO??: Understand that part of dealing with the disruptive changes that all businesses are confronted with these days requires that you systematically examine and probably redesign your organization's infrastructure.

See that an optimally designed organization is a source of competitive advantage and sustainability--in good times and especially in bad ones.

Take the time to do the hard work, and recognize that the cost of doing this work is a necessary and legitimate part of restructuring charges. The cost of not doing it will be even higher.

Get someone who knows how to do this work to help you. There is less room for error at times like this. It will also enable you to develop a level of competence at doing organization design/redesign that will serve you well going forward.

If you'd like a complimentary initial assessment and consultation about your infrastructure and how it is or isn't contributing to your organization's success and/or sustainability, please call us. If you're experiencing any of the symptoms that infrastructure may be making difficult times even harder, or you think that you may be paying the hidden costs of a mismatched organization design, we can help you see the immediate areas of opportunity and develop the ability to adapt your infrastructure to changing business needs and conditions.

Jay Galbraith is a leading expert on Organization Design. Here's a trilogy of his most recent books:

Galbraith, J., Downey, D., & Kates, A. (2002). Designing dynamic organizations: A hands-on guide for leaders at all levels. New York: Amacom.

This is his newest book. It's as close to a cookbook as you'll find, and therefore a great--if somewhat detailed--introduction to and overview of the topic.

Galbraith, J. (2000). Designing the global corporation. San Francisco: Jossey Bass Publishers.

". . . Organization skills and capabilities simply have not kept pace with the ability to expand into new countries and markets . . . It is hard to find a company that has mastered the ability to organize and do business globally."

Mohrman, S., Galbraith, J., & Lawler, E. (1998). Tomorrow's Organization: Crafting winning capabilities in a dynamic world. San Francisco: Jossey Bass Publishers.

This book examines "new organizational designs and management approaches that are emerging as organizations transform themselves to face the challenges of continuous and relentless global competition. (Because) the nature and intensity of competition have changed--organizations are now required to be simultaneously more effective and more flexible in their ability to reconfigure themselves, carry out their dynamic strategies, and make sure they are delivering value to their customers faster and better than their competitors . . . Strategy and organization are not enough: organizations must also create new approaches to the human issues"

Organization Design Forum (www.organizationdesignforum.org) promotes the belief that highly effective, thriving, competitive businesses are consciously designed to achieve these ends. It is the only organization dedicated solely to the specialty and practice of Organization Design. They sponsor an annual conference, publish a monthly newsletter for members, and provide a website.

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