Thursday, 22 July 2010

Pivot the Organisation - Design the organisation to serve the customers not the people who work for it!

-An Article published in Leasing World Magazine July 2010 issue aimed at the Asset Finance market but true for many other organisations-

Management through functions and departments is very familiar to those working in banks and asset finance companies. This traditional approach where businesses are structured according to professional skills - financial people working in finance, sales people working in sales and processing staff working in operations - is nothing new,

The traditional functional based business design is efficient in organisations that do not change very much and in businesses with low levels of complexity. The centralisation of skills delivers savings in synergies and resource management. Today businesses that have low levels of change and are simple are rare. There is a clear driver for client focus and an emphasis on local profit and loss where centralisation and standardisation doesn’t deliver differentiation and agility easily.

However in other industries this model is changing. There has been recognition in recent times that the customer and his or her experience is more important than how the organisation is constructed. The underlying question posed is does the division of the business into these skill sets actually deliver performing processes and activities?

In many cases the resounding answer has been no. Why is this case? Many customer-based experiences have activity that crosses functional boundaries and every time there is a border crossing there is an opportunity for miscommunication and delay. The criticism of organisational “silos” is well voiced and having enterprises structured in a way which could be described as being at “right angles” to the way customers experience the organisation doesn’t necessarily facilitate good customer service.

The growing trend seems to be to structure the business in line with how the processes flow with all individuals, with whatever skill family they come from, reporting into someone accountable for the performance of the process as a whole. This end-to-end management structure is gaining popularity and pace.

This starts off with a few core customer processes where experts from all the functions collaborate in a new end-to-end organisational structure. It is soon seen that this works: customer satisfaction rises, complaints fall and more efficient processes deliver better returns. After a while the new way catches on and soon other key activities in the enterprise start to be re-organised in this fashion.

If the end-to-end management takes off the traditional functions eventually get smaller and smaller until they finally disappear. The organisation has by this stage completely pivoted from a functional construction to a construction based on its core services and underlying processes.

In asset finance there has always been the aim to create a healthy tension between the risk management sales and operation functions. The balance between the desire to sell, the drive to follow protocols and the need to reduce risk has always been a continual ebb and flow within finance businesses. If this balance is well managed then the company is successful; if one or more functions are allowed to dominate then the company either fails to achieve market share or conversely develops bad debts, both issues leading to potential failure.

The natural requirement to sustain this functional tension is maybe one of the reasons that functional based organisational design in leasing companies persists. Other industries have tackled similar issues through matrix management or balanced scorecards or indeed a combination of both to generate both customer focus tempered against increased levels of risk.

Einstein said “Insanity is doing the same thing over and over again and expecting different results”; this quote gives encouragement to try out different and new things, or else expect more of the same.

One way of developing a step change would be to try out structuring your organisation around the activities that support your customers rather than around the skills and political preferences of your employees. You may well find a lot of waste and certainly delays in delivering customer value as well as potential improvements in customer focus leading to higher volumes of business. If you structure differently to your competitors then this may well lead to market changing differentiation.

So often restructures start and finish with an organisational chart; they should start with a process and value chain map and people allocated to support the delivery of value. The message of this article is to design your processes with your customers in mind and then design the organisational structure to fit those processes not the other way round, which is the default position for so many enterprises.