structure follows strategy

Structure Follows Strategy When Designing Your Organization

by Nov 19, 2018Leadership

It Isn’t Just Names in Boxes – Structure Makes the Strategy Happen 

A common question that gets brought up in our work with CEO peer groups is how organizations should be structured in order to achieve the best results. The issue CEOs struggle with is how to put people in positions where they can make the most impact. But what we coach CEOs on is the fact that there is actually no perfect structure for an organization. Or rather, the best structure for an organization depends entirely on what your strategy is.

In other words, you need to identify your strategy first. Then you can structure the organization to support that strategy.

Structure follows Strategy

A great illustration of what I mean by this involves a company that we work with that makes high-end desserts and confectioneries. The company has been around for a long time, has grown fast, has evolved over the years, and now included multiple lines of business: retail, wholesale, and e-commerce. As the business grew, people migrated into different VP and director roles–not always for any good rhyme or reason. The titles people had didn’t always seem to match their responsibility to the organization.

So the CEO decided it was time to move people around and reassign titles. But he was struggling with how to do that. The trouble was he, like most CEOs, started with the people and tried to plug them into a new structure of the people first when it should be worked the other way around.

That’s when we asked him to first look at the strategy of his business. What he realized was that each line of business all dealt with different customers and operational challenges. So the CEO decided that he actually wanted to run the three different lines of business as separate operating entities as a way to get the best results for the organization as a whole. That became his strategy. Once the strategy was clarified, he could then restructure the organization by creating new general manager positions to run each division, and then assign staff to each operating unit to support the GM.

He started by creating empty boxes for the different positions in a classic organization chart. When he got that structure in place, he could then begin filling in the boxes with the names of the people who he thought were the best fit for those positions.

In an ideal scenario, the number of boxes you draw matches up perfectly with your strategy and the talent in the business. However, just like in a game of musical chairs, it’s almost inevitable that someone will always be left standing outside of a box when the music stops. In this case, that meant that the CEO was left with several executives and people for whom he hadn’t found a spot in the org chart.

This led to his having to make some hard decisions about what to do with those people. He could either create additional roles for them if he valued their skills or loyalty or, in the worst case, he would have to transition those people outside of the organization altogether.

There was no obvious right or wrong answer in making these decisions, as each and every organization is different and you need to adjust based on the challenges and opportunities facing you at that time.

While these are always hard decisions to make, they are easier when you understand what your strategy is versus trying to rely on the people you have and trying to design a structure around them. It’s far harder to start with a set of boxes with names in them and then try to optimize your organization’s strategy around them. When you do that, it’s almost a guarantee that you will not be optimizing your performance.

Having said that, there are times you have exceptional talent in the business and you simply make room for them. This usually works out as A players usually find a way to contribute, no matter the title we hand them.

If you’re a humanist, that might be okay. The point is to understand that if your goal is to optimize the performance of your organization, you need to understand that structure follows strategy.