The Management Organization

An executive’s preoccupation with the company’s organization structure often overlooks its own management needs. Every company must ask “how should management be organized?” An effective management organization structure raises the value-creating-productivity of the entire company.

Unorganized Organizations

Organization concepts in business literature have evolved steadily over the last 100 years to address the increasing size and complexity of operations, market pressures, and globalization. However, we rarely stop to ask "what about the management's organization structure needs". We assume that we know capabilities, backgrounds, and organization needs of management. It should be all pretty straight forward and make common-sense. Drucker (1986) noted that effective organizations and management were not very common in the 20th century. Decreases in productivity were reflections of executive management and their poor operating structure. Thus far, there is little evidence that anything has changed in the 21st century.

Organizations are limit and cost structures used to service customers and markets. As a social concept, organizations are characterized by effort and cost (Drucker, 1984) that define limitations versus market potential. Organization theories such as X, Y, Z, centralized versus decentralized, functional versus business units have served to broaden the discussion, but have generally addressed treating the organization as a collaborative heterogeneous structure. Some noted theories have further suggested that organizations must become adaptive and learning. However, what has become apparent is that organizations are not absolute, but rather a tool for effectiveness and productivity, as well as defining contribution and accountability (Senge, 1999). Corporate failures can be directly tied to the lack of attention that has been paid by C-Level executives to the effectiveness of top management's organization structure.

In order to meet the market challenges executive management should consider its own structural needs first, and then the overall company’s organization. Management tends to view the company as a whole in which operational functions exists. Executives rarely ask “how should we be organized?” Questions such as what does our markets pay for; how does our management structure reflect our competitive advantage are rarely addressed until disaster hits. Instead, management seems content with its structure based on last year’s assumptions about the markets, customers, and productivity requirements, which are not likely to be valid in competitive or changing markets.

Organizing the Management Structure

Every top executive should be focused on the required productivity to serve and exploit markets. The management structure must facilitate systematic processes that create a culture of exploiting opportunity, not problem solving. Changes in markets, work forces, and globalization will demand that no manager be insulated from the market it serves. These realities will require new organization structures to facilitate increased information with better and faster communications for decision making. These processes will need to be organic to the organization, which demonstrates management’s knowledge and expertise. Management organizations are more effective not because they have more talented management, but rather because they reflect processes and practices that implement systematic prioritized focus on the most critical of tasks that exploit opportunities.

There is no single "right" organizational structure. The influences of globalization suggest that the management organization will need to respond to variety of competitive environments, opportunities, and cultures to be effective. Multiple organization structures will need to coexist as new geographic, demographic, and market behavioral influences impact a company’s cost structures. The new management structure will need to ensure that executives can directly experience the evolution of markets and evolving demographics. This is twice as important for staff functions.

Management and staffers sitting in an office solving problems is a sure way for a company to lose its leadership, or never regain it. Market & customer insulation greatly compromises decision making due to the lack of situational awareness. Once decisions start to reflect more of the internal pressures rather than servicing customers and exploiting market opportunities, then the management organization structure will need to change to maintain effectiveness. New management structures should reflect the integration of strategy with implementation, as well as indicate the responsible leader and accountability. It must also eliminate energy sapping political problems, point to the experts, and solve resource support challenges. Above all, the new management organization structure must minimize inherent organization structure limitations and encourage an entrepreneurial spirit. Every executive must be an entrepreneur. An entrepreneur is someone that redeploys assets to a higher value.

Summary

The management organization structure must define minimum performance requirements and inspire maximum employee contribution. An effective management organization helps employees to see opportunity versus running from one problem solving fire-drill to another. Continuous problem solving by senior management bespeaks poor process and organization structure. The management organization structure should help executives to starve the problems that sap corporate resources. Rather it must invite an entrepreneurial spirit for exploiting real market opportunities.

-Hiram Willis

Ph.D. Finance &

Marketing Professor