How Did Large Organisations Get So Large?

No one starts an organisation of 40,000 people. Large corporates must grow from something small to something big. Whether its organically or through mergers and acquisitions, large corporates each have their own unique story of how they became the organisation they are today. In Australia, our largest companies by market capitalisation are shown in figure 1.

These organisations are all old familiar names, woven into our history.  They have grown to 10’s of thousand employees over 100 years or more. They have made outstanding contributions to our country and in the past, have often been the backbone of the community; the local bank manager or the store manager at your local Woolies.  Those of us who have lived in Australia for generations will probably know, or quite often be related to people who retired after 40 or 50 years employed at one of these companies.  My Grandfather spent his entire career at CBA. These companies typically are included in our superannuation investment and are held in the share portfolios of mum and dad investors.

How have they got to the size they are today? CBA was founded in 1911 as the government bank, soon after Federation in Australia, built upon the amalgamation of many State banks. ANZ is 182 years old and employs about 50, 000 people. Its size is a result of the mergers and acquisitions of many different banks over the years.  BHP merged with South African company Billiton in 2001, and has acquired many smaller organisations during it’s history. Both BHP and Billiton were founded in the 1800’s.

 

The Frog In Slow Boiling Water

So just imagine for a moment, the impact of in-organically growing an organisation over 100 years or more.  Historically the organisational approach to the integration of mergers and acquisitions was the ‘bolt on’ effect.  In the case of a merger; bolt two companies together.  In the case of an acquisition; the smaller company comes and does things our way.  What you are left with is a mashup of processes, systems and policy.  Then on top of these complexities are the work-arounds.  These are the steps you need to take to make things work in today’s context.

Like the frog in slow boiling water that doesn’t know it’s burning, the organisation becomes a 12-14 layer hierarchy of people (at the lower levels) doing their job without really understanding why. Formal communication channels are twisted or blocked. Relationships have become the key currency because without knowing the right people it’s impossible to find information, or to get things done.  

Think about this from a customer’s perspective. Have you had the experience of calling a provider about a problem with a product or service and you can’t find a person in the organisation who can help you? It’s very frustrating.

Have you been transferred from department to department to follow their in-house process to get something done? You’ve spoken to billing, who’s transferred you to the connections team, who then transfer you to installations.  These are not a processes created with the customer in mind and at last large organisations are realising this.

The biggest threat to these large organisations are digital disruptors. The rapid speed of technology advancement combined with globalisation means new business models can quickly be developed, tested, iterated and scaled. It doesn’t take long, and it doesn’t cost much. These organisations start with an idea and a blank piece of paper. They can quickly respond to changing customer requirements, legislative changes and advancements in technology. They experiment and fail fast, or continue to iterate until they find their solution. They create feedback loops to continually delight their customers and stay ahead of their competitors.

Case in point:  Previously, as a consumer we were pretty much held over a barrel when it came to our energy provider. AGL, Origin, Energy Australia dominate market share and have competed fiercely for our purse with door knockers and switch-over honeymooon deals. Bills bamboozled us and comparing rates was difficult. This led to a reluctance to switch providers and long term ambivalent customers. Then the disruptors started to catch our eye- companies like Powershop and MojoPower are easy to use with customer friendly digital interfaces. They don’t use expiring discounts and are completely transparent about wholesale energy rates and the rates they are passing on to customers. And most surprisingly, they kind of make buying energy fun.

There are two things large organisations are doing to remain relevant and able to compete in today’s market where digital disruptors are nipping at their heels. Often, they are happening concurrently; slimming down their mature businesses and creating a different operating model for adjacent businesses.

 

1. Slimming down mature businesses

If you’ve worked for a large organisation you have probably experienced ‘transformation’ in a corporate context.  Transformation is organisational re-design on a large scale.  Usually driven by removing complexity from the business so it becomes lean, agile and therefore responsive to the market or a change to strategy.

The last thing organisational re-design is about is moving boxes in an org chart.  Rather, it’s the way a business operationalises strategy. In its purest form, organisational transformation can be described in Figure 2, and as follows:

  • Start with the business strategy and your articulation of how you intend to win in the marketplace.
  • Take a gauge of your leadership and culture and the intended and unintended consequences of this. With this information, you can make an informed decision about what leadership and cultural change is required.
  • Take a big picture view of the work being done and whether it is delivering your strategy.  Things to consider are; Is the work grouped together correctly? Is what you are doing today future focused? Is it resourced appropriately? Is it located in the right geography? With this information, design the operating model.
  • Then get into the detail; are the systems in place supporting the operating model? do you have the capability you need for today and in the future? Is work easy to get done? What are the blockers impeding success? With this information, design the work, systems and processes that support the operating model.
  • Creating the new organisational chart and then putting names in boxes is the very last step – you’ll find that is the easy bit!
Figure 2 Simplified approach to organisation design

Figure 2 Simplified approach to organisation design

Stakeholder engagement is critical to creating accurate analysis of the work currently taking place.  You’ll be relying on stakeholders to provide insight to what work needs to start, stop and continue. When it comes time to implement the changes, great communication throughout the discovery and design phase will help to smooth the way.

 

2. Creating a different operating model for adjacent businesses.

As technology evolves and consumers demand more, large organisations are looking for new growth opportunities to replace declining businesses.  With the financial and people resources available to them, large organisations are well placed to grow new ideas and markets.  Or are they?  

Overbearing governance puts a reporting burden on mature businesses that slow them down.  There are too many hurdles to jump to receive appropriate funding.  Accountability is unclear when new products or services run across business units – everyone wants it when it’s a winner, but no one is around if it’s a dud.

Where large scale transformation of a mature business is not an option, not a priority or happening too slowly, organisations are getting more innovative with their approach to organisational design.

Large organisations are drawing an invisible line between their mature businesses and adjacencies.  Adjacencies are the areas of the organisation where experimentation and innovation usually takes place with the intent of starting up new businesses for growth.  The separation can happen by different degrees; however, it seems the bolder the organisation allows their adjacencies to be, the more innovation and growth that can take place.

Case in point: GE‘s operating model was delivering what they needed to run their mature businesses. However, their emerging businesses were being stifled by the same model. With an aggressive acquisition strategy, it was disappointing that once moving under the GE umbrella, acquired businesses did not perform as well as predicted. To address this, GE created a ‘Growth Playback’ that set a different way of working for these adjacencies. As a result, GE grew a Software Centre of Excellence in the Silicon Valley that changed the organisations software capabilities.

Separating new businesses from mature businesses is an organisational design approach that is leading to new products, services and markets flourishing.  It is keeping large organisations relevant, as well as quick and nimble to respond to change. Once proven, large corporates have the benefit of either bringing the adjacent businesses into the core or spinning them off into separate entities.

 

Designing An Organisation That Is Agile, Talent Enabling And Quick To Respond To Change

A lot of the work done in re-organisations is to remove the excesses that slow large organisations down.  Historically, large organisations operate on a cycle of bolting on lots of extras that make them bigger and more cumbersome, and then every 2-3 years trimming down and shedding cost (usually headcount).  This will not be sustainable as more and more smaller disruptors enter the market

More often I’m hearing organisations use the term evolving strategy in the context of new businesses and digital start-ups.  An evolving strategy is based on the principles of iteration, innovation and continuous improvement.  It acknowledges that today we may not have a long-term view because we are creating the future as we go.

So how does an organisation design itself to deliver an evolving strategy?

The most important element of this is creating a culture of continuous change.  Employees who experience another re-organisation soon after the previous one is finished, experience change fatigue.  Change fatigue presents as concern about job security, a lack of trust in leadership and a feeling of being disillusioned about the direction of the organisation.

Organisations that create a culture where people are aware and ok with the company constantly shape shifting will be more responsive to change.  This is a culture of experimentation, where teams are created to explore new ideas.  If the idea gets legs, a department may be formed and grow into a new business.  If it doesn’t work, that’s ok, because in an innovative organisation failure is ok. People are encouraged to call it out when a project is not going to succeed. The team then shifts their attention to work on another idea.   The future of organisational design will be to create organisations that can innovate and quickly re-organise to respond to a change.

 

Redundancies Are Going Extinct

In the next 15-20 years ‘redundancy’ will become a thing of the past.  When you finish a job there will be no golden handshake, you’ll just move straight on to the next job with a different employer.  

This is happening sooner rather than later for those who have already taken the path of an independent consultant.  Organisations will have a very slim centre of strategy setting positions, shared services will be outsourced, people in project related roles will flex up and down as required. Organisations will keep costs down by hiring specialist capability on a short-term basis only. 

As Artificial Intelligence continues to go mainstream, more and more jobs will be replaced by robots, sensors and cognitive computing. An organisation design that is future focussed and anticipates declining jobs can minimise cost and disruption.  Understanding the capability you have today, and the capability you need tomorrow is important to managing your talent investment and managing shrinking workforce requirements

Case in point: Self driving vehicles are coming with BMW, Daimler and Ford amongst the 30 companies investing in this technology. The progressive think tank Centre for Global Policy Solutions (CGPS) alerts us to the impact on the transportation workforce. The flow on effect of this technology will be far reaching and could impact more than four million jobs in the US.

Organisation Lifecycle Informs Organisational Design

How large organisations manage organisational design varies greatly between organisations, and even within organisations.  Whether your organisational design approach is to slim down mature businesses, separate start-ups and growth businesses or other strategies like creating a spinoff, the best indicator for a starting approach is to consider where the business is in the organisation lifecycle (Figure 3). Although other factors will contribute to your organisational design, considering the points below at each stage of the lifecycle will help to position your organisation to respond to internal and external pressure.

For large organisations, often there are a number of businesses operating within each of these phases, so the challenge is, to convince stakeholders that a one size approach will not be suitable for all. Good organisational design puts business strategy first, followed by the operating model, then organisational structure last.  Culture and leadership weaves through all of these stages to create an organisation where your people can thrive.

A business that can effectively operate through a continuous cycle of change will see competitive advantage in the increasingly fast paced environment we find ourselves in. Future focused organisations are preparing today for the onset of more disruptors and higher expectations from customers and consumers.  Where spending may have been a blind spot in the past, it’s now understood that keeping operating costs down is a non-negotiable.  Being lean, and being agile are necessary to quickly change direction and respond to changing market conditions.  Large organisations are aware of this and are ready for the rapid changes to technology and a different way of working that is to come.

 

Figure 3 Organisation lifecycle and organisational design approach

Figure 3 Organisation lifecycle and organisational design approach

Good Organisation Design Is Critical To Delivering Your Strategic Objectives.

From this article you may be concluding that most problems arising from complex organisation design can be avoided if you start as you mean to go on.  With hindsight we can see the mistakes of the past and seek to correct or at least learn from them where possible. The call to action for fast growing smaller organisations is to prepare for growth early and ensure your organisation design supports doing this in a lean and agile way, with a simple operating model.  You need to be able to flex up and down as the environment you operate in changes, and be able to innovative to find new opportunities.

For those organisations that have mature businesses operating within them, to remain competitive you will need to strip out any excesses that are slowing you down or adding unnecessary cost.  Rapid advancement in technology means digital disruptors are either your new competitors or are creating new markets that leave you obsolete.  Organisation re-design, or transformation, is a painful process for those it impacts.  But like a muscle that hurts while you train it until it is stronger than before, large organisations will come out the other side more competitive, relevant and sustainable.

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