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Delegation Strategies: When NOT to Delegate

We’ve all been encouraged to delegate more. We’ve also all had the experience of delegating in the past only to have things turn into a total fricking disaster. Most management writing is on how to delegate better. I want to explain when, why, and how you should NOT delegate at all and how to better educate your team about why you’ve made those delegation decisions.

What inspired this article is a CEO friend of mine who recently completed a 360 degree performance review between herself and her leadership team. Can you take a guess at what most of the ‘things to improve’ feedback was? You got it. “Needs to do a better job of delegating.” “Tries to do too much herself.” “Gets too involved in the details sometimes.” I see the same scenario often with my clients.

Some of the feedback my friend received was valid. But some of it was not because, in this instance, she doesn’t fully trust in the abilities of the subordinates who were giving the feedback. She’s not wrong. How can you delegate a mission-critical project to someone whose capabilities you don’t fully trust?

There’s a mental model I like called the Conviction-Consequence matrix that helps to clarify to yourself and to others what projects you’re delegating and which ones you’re not and why. I picked up the outline for this model in the book Super Thinking, where the authors originally attribute the model to venture capitalist Keith Rabois. I’ve put my own spin on it:

Do It Yourself are those projects or situations that you have high conviction over and that also have very high consequences, positive and negative, to you and the organization.

I just love the use of the term conviction here. Think about the things in your life that you have high conviction over. Notice that you tend to be very capable in these areas already. You likely also have some significant experience dealing with similar situations to this one in the past. Ideally, you also have deep understanding of the first principles that guide the outcomes in this area.

However, there are also times as an entrepreneur when you can’t actually explain why you have such high conviction. You just know that you know, even if you’re not sure exactly why you know. True conviction can sometimes be a purely innate sense but it is still one that is hard to argue with.

Delegate to An Expert refers to those projects or situations where you have low conviction yourself but there are definitely high consequences for you and the organization. These are the projects or situations that you delegate to an expert, either to an internal staff member or to an external resource whom you trust.

The operative word here is trust. Building trust takes time. So if this is expert relationship is a new one to you, then you’ll need to spend more cycles getting to know him or her, learning from them, and verifying their approach and results. Once trust is built, you can delegate here with higher confidence and less of a time burden on you.

Delegate to Develop Others are those projects and situations where you have high conviction over what the end result should look like but it’s of low(er) consequence. This is a great area to use to train and develop your high-potential staff members. If they make a mistake, it’s manageable, and you’ll both learn and grow from it. But you’ll often be pleasantly surprised at their results too, which further builds trust between you and encourages you to give them high(er) consequence projects in the future.

Always Delegate are those low-conviction and low-consequence projects and situations. Get these off of your plate – and fast. Build complementary teams and support systems around you so these things get taken care of in ways that are timely and accurate, but require little time and energy expenditure from you.

Next Step: Map Your Projects

Using the Conviction-Consequence matrix as a guide, the next step is to reflect on how you’ve spent the last few weeks or months and place those projects or situations into the quadrant they should be in, then compare them to how you’ve actually been managing or delegating them. Look for discrepancies.

Are you spending your finite time and energy on directly leading projects that you don’t have high conviction over? If so, I would wager a large sum of money that you’re stressed out and agitated because you feel like the blind leading the blind.

I also imagine that you have had a hard time finding a suitable expert to take on this project, either because you lack the resources or you don’t fully trust the person who should be in charge, and so you’ve stepped in to fill the void.

My advice? Shift resources to finding and placing the expert, again either internal or external, that you can trust. There’s a reason that Jim Collins coined the term “first who, then what.” If you don’t have the right people on the bus to drive a project, you probably shouldn’t be doing that project right now.

Are you missing opportunities to delegate low(er)-consequence projects in order to develop your staff? Developing others takes time but if you don’t let go of some things, you’ll end up drowning in all things. What projects do you have high conviction over that you can and should delegate and to whom?

For instance, my friend who inspired this article is in the middle of raising Series B. Obviously a high-conviction and high-consequence project. However, she’s been spending an inordinate amount of time getting the investor deck right. She realized that her business analyst is actually the perfect person to delegate this project to. Of course she’ll validate the work and can make any adjustments but more importantly, she can use it as a development opportunity.

Have you been ignoring some high-conviction and high-consequence projects? If so, this is a double negative whammy. These are the projects that you’re best at doing and should be doing but you’re not, likely because you’re too busy and consumed managing people and a litany of other projects. Fix this and fast. Not only are you not doing what’s best for the organization, you’re likely irritable and stressed out too because you’re not playing to your personal strengths and interests. It’s a downward spiral.

Do you have any low-consequence and low-conviction projects sucking your time? I think all of us are clear that we’re supposed to be outsourcing/delegating these kinds of projects and activities but it’s still easy to get sucked in here. Be vigilant in not allowing low-value and high-cost projects into your life. Don’t trade activity for effectiveness. In order to drive meaningful things forward, you have to have the capacity and focus to actually do it. Everything is a trade off.

Mental Models Are Best When Shared

Mental models are best when shared, so one thing I recommend is to actually teach your team this matrix and lay out where the current projects and situations should be in each quadrant. You’ll notice that some projects seem to get stuck in the middle between quadrants. That’s a great leading indicator that something needs to change.

Do you trust the leader to whom you should delegate? If not, make it known how they can build trust with you and vice versa. What are the expectations, key results, and key performance indicators to tell you this project is on track? Align there or make a change in the leader. Don’t get stuck in the middle.

Do you lack the resources to delegate to? If so, do less. Let things go until you have the resource you feel you can quickly get to high trust with. If you’re under pressure from elsewhere in the organization to legitimately do too much, then shift your focus to making this known and coming up with a solution.

Finally, use this matrix to ask your team for perspective on where they think you can do a better job of letting go and delegating. Find out where they are inspired and talented enough to step in and fill the gaps. And what are the expectations you have on them if they do take a particular project on? Well begun is half done.

Every leader has to go through a progression from leading by doing to leading through others. Use the Conviction-Consequence matrix to identify gaps in where you should be delegating or not and to create shared consciousness on your team about where the problems and opportunities lie. If the team can understand the rationale for why delegation decisions are made, this will reduce internal noise and friction around who is doing what.

I hope this concept was helpful in delivering some new perspectives for you and your team on when to delegate, when not to, and why.

By |2020-03-02T13:20:25-08:00March 2nd, 2020|Articles|Comments Off on Delegation Strategies: When NOT to Delegate

Great Brands Have Only One Message

Casper the online mattress company – sorry, eh, I meant to say “the sleep transformation company” – recently announced its IPO. From the S-1:

As the wellness equation increasingly evolves to include sleep, the business of sleep is growing and evolving into what we call the Sleep Economy. We are helping to accelerate this transformation. Our mission is to awaken the potential of a well-rested world, and we want Casper to become the top-of-mind brand for best-in-class products and experiences that improve how we sleep…

We believe great brands win over the long-term and have the ability to change the culture around them. We have endeavored to build a brand that is genuine, trustworthy, and approachable, as well as fun and playful. Through our investment in a sophisticated and integrated marketing strategy, we engage consumers across the entire consumer journey, from our iconic public transit advertising campaigns, to our “Napmobiles” and experiential retail store concepts, to our category-leading social media presence. We see the Casper brand as an immeasurably valuable asset that we are utilizing to help capture a large share of the Sleep Economy.

When you read this, does it make you want to go online and buy one of their mattresses? Me neither.

Does it make you roll your eyes a bit? Yep, me too.

But does it do what the message is targeted to achieve – to speak to the financial community and gather interest and excitement for the upcoming IPO? I don’t think it does.

In fact, I think this message creates more harm than good because the brand is speaking with two voices. One to its consumers through its “brand focus” and one to its investors through its “investor focus.”

Great brands don’t do this. Great brands speak to the core customer’s perspective with one voice and one message to all stakeholders.

So what should Casper say to the investment community instead? I don’t claim to be a communications expert but it’s some variation of what really matters to the core customer: “Casper helps people have a great night sleep.” Period.

Why is this the core message? Because the core customer defines the polestar for all other company stakeholders, activities, and initiatives. If the head of the company muddles this message and focus, then they muddle everything else too.

“But wait a minute,” you might be asking, “what about meeting investor needs? Prospective IPO investors will certainly want more color on the company’s customer acquisition costs or gross margin or strategy, so shouldn’t they also have a message tailored to the investment community?” Nope. From the top of the company down, it should actually have the same message when speaking to the investment community as they do to all stakeholders, internal and external: “Our focus is on helping people to have a great night’s sleep. Everything we do is about understanding our customers’ needs. We strive to provide our customers with the best sleep possible at great price. That’s what we do.”

Notice that in my example I actually didn’t answer the questions from the financial community. That’s exactly right! The most important thing for brand engagement as well as organizational culture, alignment, and execution is that the leadership of the organization consistently reinforces the organization’s purpose from the core customer’s perspective.

All communications, internal and external, must speak to the purpose of the brand and as if everyone was a potential consumer of Casper mattresses. Financial investors can review the company’s financial statements. Those who really care can tell if the company has healthy acquisition costs and operating margins. But the core message shouldn’t deviate. In this case, probably on the advice of the investor relations committee, Casper made a mistake by attempting to appeal to the investment community by focusing on the company’s data acquisition strategy as a competitive differentiator:

“We believe we have more data on consumer sleep behavior than any other competitor, and we use it to enhance all areas of our business. We gather data from a variety of sources including webpage visits, retail store analytics technology, retail points of sale, delivery partners, retail partners, media partners, social media, consumer reviews, inbound consumer interactions, returns, and a variety of third-party data sources. Our in-house teams of data scientists and analysts leverage this data for insights to enhance various areas of our business including new product development, current product improvements, casper.com user experience optimizations, pricing, and delivery improvements.”

Information is free-flowing. Investors read it but also consumers and employees. Multiple messages go to all audiences. Now if you’re a potential consumer of mattresses or even “sleep transformation services,” does giving up a bunch of your data to a CPG brand fill you with warm fuzzies? Didn’t think so. Or, if you were an employee reading this does this focus fill you with pride and tap your latent creativity for the company? Just the opposite. If Casper was smarter, they would drop the split personality and speak with one voice to all stakeholders through the lens of the consumer.

Do you know who does this really well? Jeff Bezos and Amazon. Bezos is always on message about being customer-centric, about finding new opportunities to listen to customers and to delight them. Go read any Amazon quarterly report or press release. It’s almost ALWAYS written towards the end consumer. There is nothing in the messaging that orients away from the purpose of delighting the customer or sending mixed messages.

Does Amazon’s lack of sharing internal strategies or metrics piss off some investors? You bet. Does Amazon have a lot of detractors? Yes, it does. Does it matter? It does not. What matters is that from the top down, Amazon is always speaking to all stakeholders through the lens of only one message and customer: the consumer.

For example, here are some random quotes from Bezos speaking to Prime (Amazon’s amazing economic flywheel), Innovation, and Strategy. Notice how everything is focused on the end consumer:

On Prime: “We want Prime to be such a good value, you’d be irresponsible not to be a member.”

On Innovation: “Even when they don’t yet know it, customers want something better, and your desire to delight customers will drive you to invent on their behalf. No customer ever asked Amazon to create the Prime membership program, but it sure turns out they wanted it, and I could give you many such examples.”

On Strategy: “There are many ways to center a business. You can be competitor focused, you can be product focused, you can be technology focused, you can be business model focused, and there are more. But in my view, obsessive customer focus is by far the most protective of Day 1 vitality.

“Why? There are many advantages to a customer-centric approach, but here’s the big one: customers are always beautifully, wonderfully dissatisfied, even when they report being happy and business is great.”

The point I’m trying to make is that as a leader, first and foremost, the message starts with you and you need to know for whom it is that your organization exists and that answer should drive all of your messaging. Knowing for whom you exist is even more important than articulating why you exist. A high-performing organization cannot serve multiple masters. If it attempts to have multiple messages to different stakeholders then it will lose credibility to all of them. Be consistent. Be on purpose. Speak with one message to your most important core customer and all other stakeholders will get in line.

Let me give you another example of the negative repercussions that occur when a brand has multiple voices to multiple audiences. This one is so egregious that I actually remember the quote from several years ago. It comes from the CEO of once hot consumer brand SodaStream:

“We created a razor and a razor-blade business model. The razor is obviously the soda maker (lower margin) and we have three blades (higher-margin): the CO2 refills, the flavor syrups, and the bottles. So it’s not a one-time sale — the blades are our future revenue stream. We acquire users, build our installed base, and we cultivate those users for life… The kitchen countertop is the most expensive real estate in the world.”

To be fair, SodaStream sold to Pepsi Co for $3.2B at the height of its popularity so you might view that as a success no matter what. But SodaStream has dropped considerably from its sales apex and I think one reason is that many consumers like me found the time between refills to be short and frequent instead of long and of value. In fact, every time I personally went to buy a refill as a consumer I would remember this CEO’s quote about the world’s most expensive real estate on my countertop and the value of selling razor blades. It wasn’t long until I felt resentful and cheated by SodaStream and it soon went below the countertop and unused.

In summary, we live in a world of free-flowing information. All stakeholders, consumers, employees, and investors are exposed to all messages. As a leader, one of your most important jobs is to set the tone. Be consistent. Be on purpose. Always speak to the purpose of the brand through the eyes of the core customer who is your most important and valued audience. If you do that, then all other stakeholders will eventually understand what’s most important to your business and can either opt out or opt in for the ride.

By |2020-01-15T14:39:03-08:00January 15th, 2020|Articles|Comments Off on Great Brands Have Only One Message

Who Owns the Customer?

When I’m building a new organizational structure with a leadership team, someone usually makes this observation: “In this new structure, who actually owns the customer?” Before responding, I first try to get a shared definition so I’ll ask them to clarify: “Great question. What do you mean specifically by ‘own the customer’?”

They tend to hem and haw before replying something like, “You know, own the customer… a single point in the organization that knows everything about the customer, that is accountable for the overall customer experience, makes product decisions, and that champions the customers needs.” They might then share with me that in their old structure, this role was held by the VP of Product or Marketing or Customer Success. “In this new structure,” they’ll add, “it’s unclear who owns the customer.”

OK, now we’re getting somewhere. Here’s the answer:

In a well-designed organization, no single role should “own” the customer. Instead, the entire structure must be designed to acquire and serve the right customers now and over time. Every role in the structure has a part to play in accomplishing that mission.

Put another way, there are some key steps in the customer journey: from acquisition to on-boarding, to engagement, to support, to the design and maintenance of the products and services customers use, and so on. Each of these distinct steps in the customer journey actually requires a different mindset, skill set, and focus. If the structure were designed so that one role is accountable for all aspects of the customer journey, some very predictable problems will emerge because the organization is attempting to consolidate too many conflicting and competing needs under one role.

What kinds of problems? They exist on a spectrum in relation to the competing demands of short-range vs. long-range, efficiency vs. effectiveness, and autonomy vs. control. You can read more about these competing demands in Top 10 Signs Its Time To Change Your Org Structure. How those problems show up in your particular business will depend a lot on the skills, style and interests of the individual leader as well as the lifecycle stage of your business.

For example, if the leader who is supposed to “own” the customer is more sales-oriented, then you can expect to see a lot more focus on customer acquisitions and a lot less on customer engagement and retention. If the leader is more process- and quality-oriented, you should expect to see a lot of great product plans but very little throughput. In other words, some segments of the cycle will thrive and others will suffer.

Or, if your business is growing rapidly in the early Nail It stage, for example, you will see a lot of firefighting by the team to meet customer needs, with no one really sure who is in charge of each step, and no solid foundation to actually sell and serve customers sustainably. This will result in underperformance across the board.

In any case, the solution to solving these challenges is to actually map out an ideal customer journey and then clarify what roles or functions are accountable for each step. Then it becomes a question of implementing cross-functional processes, teamwork, and metrics to delight the customer at each stage of their journey with different roles focused and accountable for each distinct step.

Let me give you an analogy. If your organization was a professional soccer team instead of a business, who should “own” the victory? The answer is that the entire team is responsible for the wins and losses. But clearly, different roles are accountable for different things. The forwards are accountable for scoring goals. The midfielders for controlling the transition game. The coaches for ensuring that the right players are well-prepared and on the field, and so on.

The head coach of a soccer team is ultimately accountable for success or failure of the team. Just like the CEO, the “buck stops here.” However, the head coach’s job is to delegate accountability for key results on and off the field. Accountability can and should be delegated but responsibility cannot be. In other words, the entire team is responsible for success, with key roles each accountable for their part. Another way to think about this is that if there is one role that owns the customer journey, it’s actually the CEO. The CEO delegates key steps in that journey to other roles.

The same is true for your business. Let me show you what I mean. First, see if you can map out the ideal Customer Journey for your business today from start to end (not what is happening but what should be happening). You can think of the Customer Journey as a cycle or a process that repeats itself. As a leader, your job is to design your Customer Journey so that, like a flywheel, each iteration is done faster and better for your customers.

Mapping the Customer Journey

Below is a simple Customer Journey map for a B2C product company that sells through retail channels. Your goal is to design something similar to this. Draw the key steps that customers should go through and that answer the question, “How should we best identify, engage, sell, retain, support, and develop new and existing customers?”

The Customer Journey or Customer Cycle shows how we best identify, engage, sell, retain, support, and develop new and existing customers.

Next, see if you can map the functions or roles that should be accountable for each step in your Customer Journey, just as the roles on the soccer field have different accountabilities. If you notice that you’re consolidating too many steps under one function or role, see if you can push deeper into the organization to the role that is actually accountable for implementing or performing that step in the process. You want one role accountable – not two – for each step.

As an example, here is the same Customer Journey as before, now mapped with the roles that are accountable for each step:

Customer Journey mapped with key accountabilities at each step.

To be clear, I am not showing reporting structure in this map of accountabilities. For example, Fulfillment may actually report to Operations or Product Marketing may actually report to Brand Marketing in the structure. However, I am calling out which role is accountable for getting the work done “on the field.”

It might be tempting to do this exercise and say “OK, yes, this is the ideal Customer Journey and yes, these are the roles accountable for each step and now I’m going to just have Sales or Marketing or Product or whatever oversee the entire journey.” This would be a serious mistake that would actually violate the laws of structure. It’s akin to asking your goalie to report to your lead forward, which would backfire on the soccer field, right? Well, if your business is set up in a similar way, it will backfire there too.

Do You Feel Nervous?

If you’re feeling nervous about NOT having one role accountable for the entire Customer Journey, then I haven’t done a very good job of explaining myself. Let me put it this way. Would you feel nervous if you were actually a soccer coach and your lead forward on the soccer team wasn’t also playing goal keeper simultaneously? Of course not. On the contrary, you would feel very nervous if that were actually the case. Instead, you should feel nervous about not having strong leaders and performers executing each key step in the process.

Rather than thinking about “owning” the customer, think instead about designing an entire organization that excels in delighting its customers at every step of the way.

The same concepts are true for your Product Development Cycle and for your Employee Cycle. These and other mission-critical process cycles in your business require their own accountabilities, teamwork, and cross-coordination. They don’t require one “owner” and in fact, you’ll find yourself suffering if you have them consolidated in that way.

But Wait – We Need One Person in Charge Around Here!

This takes me to the hidden objection behind the questions, “Who owns the customer?” or “Who owns product decisions?” or “Who is accountable for recruiting?” that I often come across when designing a new organizational structure. It’s the erroneous belief that “I have to be in charge of it in order to get the work done.” This is a fallacy. Instead, what most often happens when a role in the organization believes they need to “own it” in order to make it work is that they end up managing a bunch of entropy that they’re not well-suited to manage.

For instance, I was recently working at a company with a head of Product and Marketing (these are two distinct functions, by the way, and they should never be co-joined). He was very reluctant to give up product management decisions in order to spend more time on marketing and brand development activities (areas he was much better suited for and where the company really needed a boost). His ego believed that he needed to “own the entire customer journey” in order to ensure that the product was on target and customers were satisfied.

What do you think was actually happening? He was spread thin, operating outside of his true strengths, and fire-fighting in a bunch of different areas of the business. As a result, nothing was working well. His belief was, “I need more resources!” In reality, he was trying to be accountable for too many things on the field at one time. This is a recipe for failure. He was trying to play offense and defense at the same time and he was exhausted. The entire team was suffering, especially in new product launches, which he never seemed to find the time to lead.

Everyone – the entire team – is responsible for wins and losses. But different roles in the organization should be accountable for discrete steps in the Customer Journey. The same is true for how you develop and maintain your products (Product Journey). Ditto for how you attract, retain, and develop your employees (Employee Journey). All roles must have clear accountabilities but also work together to deliver excellent results in a changing world.

So back to the question that started this article, “Who owns the customer?”  The answer is: No single role owns all aspects of the Customer Journey. The entire structure must be designed to support a world-class customer experience at every step, now and over time.

By |2020-06-17T07:43:47-07:00December 5th, 2019|Articles|Comments Off on Who Owns the Customer?

Communicating for Better, Faster Change Management

As a manager, have you found yourself asking an employee or team to do something differently and, despite your best attempts at getting through to them, their old behaviors remain? Does this not make you want to pull your hair out in frustration and consider a new career in bocce ball?

If you’ve answered even a half yes, you’re obviously not alone.

Often things go like this. You communicate to an employee or a team that something needs to change. You make sure to look for signs of shared understanding and commitment back from them: “Does what I’m saying make sense to you?” or “Can you repeat what I said back to me so I know that I was clear?” In that moment, they seem to get it. But when you follow up a few weeks later, you’re dismayed to find out that their old behaviors remain are stuck in place.

This scenario is as frustrating as it is common. The good news is there are approaches that can help you get the results you want with much less effort. I’m going to share a great one here that I learned recently from a wise mentor and coach.

The next time you find yourself in a similar situation, you can try this approach instead. Begin first by communicating what they need to STOP doing, then communicate what they need to START doing, and then paint a picture to define in unarguable terms what the IDEAL would look like.

If you can follow this sequence of STOP-START-IDEAL, your chances of initiating change and seeing new and positive behaviors is much greater. Why? Because each of us has finite energy in time. If you don’t first call out what existing behaviors or mindsets need to STOP, that person won’t likely have the energy and capacity to START something new. Finally, if you don’t create a shared consciousness about what the IDEAL or goal actually looks like, you may even lead the person in the wrong direction.

Let me illustrate the key differences between they typical approach to coaching and the STOP-START-IDEAL approach to coaching. We’ll start with an example from sports and then apply that understanding to a corporate setting.

The Blind Side

Ben Jones is a hypothetical left tackle for the Jumbotron Jets. He has all of the physical tools and potential to be a great player but he isn’t performing at a high level. Despite the team’s best efforts at ensuring his success, he just doesn’t seem to get it.

It’s not from a lack of effort on Ben’s part either. Ben has clearly been working hard to get better. But at this point in his development, everyone — including Ben – is frustrated with his ongoing poor performance. It’s a real drag on the organization.

I’d like you to imagine that two of Ben’s coaches are on the line guiding him to practice his run blocking. Let’s listen in to the two approaches:

Coach 1: “Ok Ben, I want you to keep your body low and drive powerfully off the line, ready? Hut hut.”

“Damn it Ben, that’s not quick enough. You’re too far back in your stance. Do it again!!”

Coach 2: “OK Ben, I need you to first STOP shifting your weight back in your stance. Instead, I need you to START shifting your weight forward in your stance. Look, here is a picture of an IDEAL stance that I need you to model. Notice how far forward it is? Good, any questions? OK, ready, hut hut.”

“Nice Ben, you nailed it. That’s exactly right. Good job.”

What was the difference between these two coaches and their impact on Ben? The first coach told Ben what he wanted but it didn’t work because Ben’s existing behaviors and mindset were in the way. In order to be more successful, Ben first has to recognize and let go of what is taking up space in his behaviors and mindset. It’s not enough that others can see what Ben has to stop doing. It only matters that Ben gets it!

The second coach began by telling Ben what he needs to STOP doing. Only then could Ben fully understand what he needed to  START doing. This coach also made sure that Ben could see and start to embody the IDEAL in his mind’s eye. It would be no surprise if Ben’s performance immediately started to improve.

Begin with STOP!

The second coach who followed the STOP-START-IDEAL model has a valuable insight and lesson for every manager struggling to coach up their staff. It’s the recognition that each of us has finite energy and capacity at any moment in time. If we don’t first identify and clear out what needs to stop happening, there’s no room or capacity in the employee to start a new, ideal mindset and behaviors. It’s true in athletics and it’s true in business.

Here’s an example from business. Let’s imagine you have an employee, Sam, who is the VP of New Business Development. Sam is charged with establishing new channel partnerships. He keeps closing mid-tier partnerships but he hasn’t yet closed one tier-one partnership, which is what the organization really needs him to do. You keep communicating, “Sam, it’s good that you’re closing these mid-tier partnerships but I want you to focus on tier-one partnerships too.”

What’s going to happen? Despite Sam putting some initial renewed efforts into closing tier-one partnerships, the inertia of mid-tier partnerships will continue because that is where Sam got initial traction and is comfortable operating. “Besides,” Sam tells himself, “at least it is something.” Inertia in life and business is a real thing.

Instead, you first need to make it clear to Sam what you need him to STOP doing. If he stops doing this, then that opens up space for that. If you don’t call out what he needs to stop doing first, the status quo will continue.

Now, you may be thinking: I can’t afford to have Sam stop doing mid-tier partnerships altogether because we need both. Well, that may indicate that you actually have a structural flaw if you are asking one person, Sam, to focus on both types of partnerships. Or it may mean that you need to stop spending outbound marketing efforts targeting mid-tier. Or it may mean that you have misaligned incentives for Sam. In any case, it won’t get fixed in Sam’s mind unless you communicate first that he needs to stop doing “X” in order to make space to start doing “Y,” and what an ideal “Y” actually looks like.

Followed by START, then the IDEAL

If you can clearly communicate what the employee needs to stop doing first, then it’s actually pretty easy to communicate what you need them to start doing, especially if you can show or model the ideal. Notice that this works for both actions and behaviors.

“Sam, I need you to stop calling mid-tier partners. I need you to start calling tier-one partners. An ideal tier-one partner is ACME which does $100M+ in sales, has 50+ distribution reps, and is the leading channel on the east coast. I need you to find 1 partner like ACME in each region within the next three months. Any questions?”

“Cindy, I need you to stop thinking like a department manager whose main goal is to build up and manage a team. I need you to start thinking like a subject matter expert instead. We already have an ideal model for this — think of Laura in the Business Alignment Office. Laura has just one staff member but she is a company resource to many people who seek her expertise.”

I’m not asking you to be formulaic with these examples, just to first call out what needs to STOP before you can communicate what needs to START happening, and then anchoring it in with an IDEAL model – in that sequence.

Who Should Define the Ideal?

In a normal scenario, you can rely on your staff to help define what an ideal looks like. In some cases, however, when you’ve been trying to communicate and you’re not getting results, it’s critical that you define the ideal. Why? Because if your employee really understood the ideal model, it’s likely that they would be doing it already. You have to define it for them and then make sure that they understand it clearly.

Needs, Not Wants

Notice in the examples that I’m using the language of needs and not wants. That’s deliberate. If the employee in question assumes that this is just the whim of you the manager and not a true need of the organization, it’s less likely that they will get it and actually change. It needs to be clear that this is a need, not a whim or desire. If these needs aren’t met, this employee is no longer going to be in this company or in this role. Got it?

What if They Still Don’t Change?

If you’ve tried this approach to change management and you’re still not getting results, then you need to either let the employee go or find a new role for them in the organization that is better suited to their skills, style, and interests.

In some cases, you’ll need to look deeper for any underlying structural flaws in your organization. If your employee or team is fighting an uphill battle in the structure, they won’t have the autonomy or resources to actually make the change you’re asking for.

Summary

The STOP-START-IDEAL communication model is based on the recognition that each of us has finite energy at any given moment in time. Before we can embrace a new behavior, especially a new behavior that’s a stretch to develop, we have to first cease doing what we’ve been doing, in mindset or behaviors, that is no longer effective.

If we can first get clear on what old behaviors or mindsets need to stop, and actually stop them, by law that frees up energy and capacity to develop new mindsets and behaviors. If we don’t first stop the old behaviors, the inertia of the status quo will continue.

First begin with STOP, then define the new behaviors to START, and then make sure to define what the IDEAL actually looks like. Do those steps in that sequence for better communications and more effective, faster change management.

Acknowledgements

I always learn a lot from the people and coaches I work with. Here I want to give a shout out to a wise and talented conscious communications coach, Veda Mallory Ball of TeamWise. Veda is the person who taught me the STOP-START-IDEAL model and reminded me to align with my own first principles of Organizational Physics: first stop the leaks or energy drains that are stealing capacity. Thank you Veda for another great life lesson. To my readers, if your organization needs practical, heartfelt communication and management training, reach out to Veda. He’s a true sage.

By |2019-09-22T10:43:53-07:00September 18th, 2019|Articles|Comments Off on Communicating for Better, Faster Change Management

The Top 10 Signs It’s Time To Change Your Organizational Structure

Lex conducting an Organizational Structure & Design Workshop in Capetown, South Africa. Photo Credit: Gregor Röhrig

Changing your organizational structure sucks.

There. I said it.

Helping companies change their structure is the work I do every day. If I didn’t know what I know now, I’d wonder, “Why would anyone want to do it?”

Changing your company’s structure can be a massive initiative. If you don’t do it correctly, it’s a recipe for disruption and disaster. People’s careers are on the line. Job titles can change. Existing reporting lines can get disrupted. One leader’s turf can expand and another’s shrink. The political fallout can be a huge cost in itself.

Even worse, if the new structure is done wrong, you’ll have the classic case of the cure killing the patient. You can set your company back even further in its development.

The corollary is also true. Structure done right can be the breakthrough you’ve been looking for. It’s like activating the booster stage of a rocket. It’s the catalyst to the next level of performance. I know because I’ve seen it happen over and over. It’s the reason why I do the work I do. It’s also one of the most misunderstood aspects of organizational design.

Let me explain all this by starting with a recent example at Microsoft.

In the early 2000s, a few years after taking over as CEO from co-founder Bill Gates, Steve Ballmer decided to double down on the existing divisional structure at Microsoft. A divisional structure typically has strong divisional heads but poor or limited cross-functional coordination across the divisions. Ballmer’s approach led to this infamous visual about working at Microsoft in the 2000s (I’m not sure who the source is but I still find it funny):

If your business has the wrong structure for its business model, strategy, or lifecycle stage, it’s not going to scale up. It’s going to trip up.

What was the problem with this approach? It was the wrong structure for a changed reality. The existing divisional structure worked well for Microsoft in the 80s and 90s during the desktop/data-center era. But the structure itself also made Microsoft incapable of adjusting to a radically changing, Internet-first era. Ballmer tried to rectify this problem by changing strategies several times but he never changed structures until 2013 (and then only haphazardly or half-heartedly). It was too little, too late. Under his tenure, Microsoft lost half of its enterprise value. Not a good score.

Within a short time after taking over from Ballmer as CEO in 2014, Satya Nadella not only changed the strategy at Microsoft to be truly cloud-first/mobile-first; he also made it priority to change and refine the organizational structure in order to best execute on that strategy. Under his leadership Microsoft has more than tripled in value.

Structure can kill or structure can strengthen your entire organization. But as a CEO, how do you know when it’s OK to let the current structure stand and when it’s time to change it?

I’m going to share with you the 10 tell-tale signs that you likely have a structural issue harming your business. The more symptoms you can check off on this list, the more urgency you should feel about designing the right new structure for your business.

1. The strategy has changed. The structure has not.

The bigger the change in strategy, the greater the need for change in the organizational structure to support it. Why? Because inertia in business is a real thing. It’s not enough to announce a change in strategy. You also have to re-align the power centers of the organization to actually execute on the new strategy. Otherwise, the inertia of the status quo will continue to send the organization on its existing trajectory.

What do you think would have happened to Microsoft when Nadella took over if he attempted to execute on the new mobile-first/cloud-first strategy within the old divisional structure? You know what would have happened! Despite his message to investors and employees about shifting strategic priorities, Microsoft would have continued to pump out windows-first desktop and mobile applications tied to Windows-only hardware. A new strategy requires a new structure.

2. You have strong individual departments and weak cross-functional coordination.

If you’re mostly pleased with the performance of your individual departments but those departments are acting more like isolated silos than high-performing cross-functional teams, this is often a structural issue. A good rule of thumb is that if you want something to change or improve in your company, you’ll need a function or role accountable for it. This includes the accountability for cross-functional coordination.

There’s a catch here. There’s a common misconception that in order to have high coordination there also needs to be high consolidation. For example, let’s say that Sales and Product aren’t working well together, causing a lot of internal friction and finger-pointing. A common mistake is to consolidate Sales and Product under one leader like a President: “Ha! That will teach ’em to get along.”

Can it work? Sure. It can work. But it’s very risky. It puts a very high dependency on one individual leader. It could very easily tip so that Sales starts to shape Product too much toward meeting short-range quotas and thus the company misses out on the next round of long-range innovation. The company can quickly become sales-dominated vs. product- and innovation-oriented.

In reality, we do want conflict between Sales and Product. You just want that conflict to be constructive towards the sustained performance of the company over time. It’s usually a mistake to consolidate functions together when those functions each serve a different purpose. It’s especially so when it’s simply an attempt to improve cross-coordination. A better and more scalable approach is to energize a function in the structure to become a peer to Sales and Product as well as other major functions — one that is accountable for cross-functional prioritization and coordination, such as the one I describe in Rethinking Product Management: How to Get From Start Up to Scale Up.

3. The new business unit is failing to get traction.

Every entrepreneur really starts to understand the importance of structure when they attempt, but fail, to launch and grow a second business unit or secondary market. One obvious reason this happens is that the main business unit (the mothership) requires perpetual resources in time, people, and money and the new business unit (the child) isn’t getting the dedicated resources it needs to achieve product-market fit and its own escape velocity. The new unit then starts to feel like a stillbirth.

An equally bad result can happen when the new unit actually does have the resources it needs to execute but is trapped within the existing processes, procedures, and systems of the mothership. The key is to structure the organization so that the new unit can succeed by giving it just the right amount of coordination and resources from the mothership for your business model and strategy. This could be a little coordination or it could be a lot. The bottom line is that the right structure will allow you to effectively manage different lifecycle stage business units appropriately at the same time.

4. The CEO is a bottleneck.

If you’re the CEO, you’ve tried to delegate. You’ve attempted to make great hires. Yet too many things are still coming back on your plate. You’re working too long, seeing too little of your family, and your health is shot. Every CEO and entrepreneur has been there.

The secret to freeing yourself from those tasks and meetings that drain your energy and time is also structural. The right structure creates role clarity and the ability to delegate into that structure with visibility and control. If you delegate the wrong things, you run the risk of causing the business systemic harm. If you delegate the right things and you don’t have visibility into performance, you’re not managing. You’re just wishing.

Many CEOs attempt to solve this riddle by hiring a Mr. or Mrs. Inside so they can be Mr. or Mrs. Outside. Again, this can work. But it’s highly risky and backfires much of the time. It’s why I recommend that you do NOT have a President and COO overseeing all internal operations.

Instead, a better answer is structural. The right structure (with the processes and metrics that bring the structure alive) allows you to stop being a bottleneck. It lets you focus on the right areas of the organization and delegate with the right level of visibility and control. This is a fine balance. If you don’t get it right, it’s unclear who is accountable for what, or if you’ve mixed too many conflicting accountabilities into one role, so things continually fall back onto your desk. Which takes me to the next, related symptom…

5. There’s a lack of role clarity.

The purpose of structure is to closely align accountability with authority. Fundamentally this means that the person or role accountable for the implementation of a decision should also have authority over the decision itself. Why? Well, have you ever been accountable for something you had no control over? That’s the very definition of soul-sucking stress, resentment, and burnout, isn’t it? Your staff feels the same way.

If you’re in a situation where you’re trying to push accountability down into the organization, but multiple people from across different departments seem to believe they each have authority over the decision or its implementation, then you have a structural issue. It will often show up in a pattern where a decision gets made, or seems to finally get made, but the implementation stalls out. It can also show up in a washing machine cycle of constant debate about the decision, with a lot of opinions expressed but no one taking the lead and actually making the call.

In both cases, the secret to creating role clarity starts with your structure. A good structure is how you begin to truly push authority as deeply as possible into the organization so that those who are responsible for the implementation have authority over the decision itself. Without the right structure, authority and accountability are going to be very hard to figure out and align. If you’re interested in learning some core principles to push authority and initiative deeper into your organizational structure, I recommend you read Scale on Principles Not On Policies: Or, How to Implement Amazon’s Type 1 and Type 2 Decision Making.

6. Multiple senior-level hires haven’t worked out.

If you’ve attempted to make several senior-level hires that haven’t worked out, this too can be a structural issue. One mis-hire is common. Two can be written off as bad luck. If you’re at 3 or more senior-level mis-hires, then you need to look at your structure. As Deming sad perfectly, “A bad system will defeat a good person every time.”
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By |2019-05-03T17:26:03-07:00February 26th, 2019|Articles|Comments Off on The Top 10 Signs It’s Time To Change Your Organizational Structure

Scale on Principles, Not on Policies: How to Manage Type-1 vs Type-2 Decisions

If I were to ask you — “How are you instilling a culture of speed, accountability, and teamwork as your organization scales up?” — how would you respond?

This is a critical question. On the one hand, you want to keep what works well from your early start-up culture — fast decision making, risk-taking, camaraderie, and innovation. On the other, you have to manage the growing complexity — more people, new product lines, multiple business units, increasing regulatory requirements, and more. How can you achieve both?

Most entrepreneurs and CEOs struggle with this. They know that as their business scales up, they must evolve how the business operates, makes decisions, and cascades its culture. They also rightly fear that more policies, centralization, and procedures could cause the company to bog down and lose its entrepreneurial edge. The status quo is no longer tenable. You need a cure but the cure shouldn’t also kill the patient. What to do?

If we were to ask Jeff Bezos the same question — How do you instill a culture of speed, accountability, and teamwork at Amazon?” — he’d say something like this:

“Amazon’s management philosophy is to be customer obsessed, treat every day as if it were Day 1, manage the two major types of decisions (Type 1 and Type 2) differently, reinforce that it’s better to disagree and commit than get stuck in information paralysis, and elevate true misalignment issues quickly.”

What Bezos has figured out, and what he’s consistently trying to communicate and reinforce, is that to be effective at scale means to build on principles, not on policies. Policies, procedures, and rules may be necessary to some extent (especially if you are in a highly regulated industry) but they do not create high performance. As you know, they often prevent high performance.

Principles, on the other hand, are designed to be few in number but strong in impact. Meaning, a principle points you in the right direction but calls on the common sense and creativity of the individuals executing it. Also, if a principle is violated, this must carry big consequences. It has to, or it has no weight; it’s just a platitude.

If you’re like me and you tend to resonate with the principles-over-policies approach to scaling a business, but you’ve also been wondering how to bring this home for your leadership team and staff, I want to share with you a one-page document I use with success in my coaching practice. This one-pager presents three “covenants” that bring some of the most important Amazon-like management principles to life in a cohesive way.

The 3 Covenants: Operating Agreements for Decision Making

The 3 Covenants are a set of core, organization-wide operating agreements that define the different types of decisions, including how to make and execute them.

These 3 Covenants don’t replace your existing strategic plan, core values, key metrics, objectives and key results (OKRs), or other elements that you may already have in place to create organizational alignment. They complement them.

Below is the basic version of the 3 Covenants. After you’ve read them, you’ll see my answers to the top ten questions I hear when helping to deploy them in many dozens of next-generation companies. For your reference, you can download the complete one-page version of the 3 Covenants here.

 

The goal of these covenants – or operating agreements – is to create a high-performing culture of accountability and fast execution. Accountability is created by accepting ownership for the roles we play. Fast execution is created by seeking out perspective from those who will be impacted downstream before we make decisions and by supporting one another towards our collective vision.

Covenant #1: The Leadership Team is the cross-functional decision-making body
This covenant is for major, Type 1 decisions. The goal is to funnel all major, cross-functional decisions into the weekly Leadership Team meeting. A “big” decision is not a decision until it is brought to the Leadership Team as a proposal in writing and is accepted by the implementer. Anyone in the company, not just Leadership Team members, can be invited into a Leadership Team meeting to make a proposal. This process leads to better strategic decisions, faster implementation, and less time spent in meetings overall.

Covenant #2: Everyone seeks perspective and accepts accountability for their role(s)
This covenant is for everyday operating and Type 2 decisions. The goal is to create an organization-wide culture where, before making a decision, we gather data and seek out perspective both upstream and downstream, as appropriate. Seeking out perspective is not the same as seeking permission. This practice leads to better decision making and faster execution of everyday operations.

Covenant #3: We commit to listen, understand, provide perspective, decide, and act
The goal is frank and honest discussion of the facts before a decision is made, followed by total commitment to implementing the solution after the decision is made. Therefore, if you are being asked for advice or perspective, you need to ask questions until you are clear about the proposal and provide honest feedback to the proposal up front. Put another way, it’s OK to question a decision up front but it’s not OK to fight it or ignore it during implementation. When you’re presented with a proposal, remember that your spirit of helpfulness and cooperation towards others brings about more helpfulness and cooperation later towards you. If you are presented with a proposal that you fully understand but still don’t agree with, a perfectly acceptable response is “I disagree and commit!,” meaning that the implementer can count on you for your aid and support.

Adopting these covenants means that any individual who makes a habit of violating them shall be dismissed. That is, it’s OK to make an honest mistake and learn from it. It’s also necessary to put out fires when there’s a fire. It’s also OK to occasionally have to ask for forgiveness rather than permission. However, it’s unacceptable to not abide by these covenants as your general way of operating.

Below are the most common questions and objections I receive when a Leadership Team is considering adopting these covenants as their core operating agreements. You may be asking yourself the same questions…
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By |2020-03-23T12:54:38-07:00January 27th, 2018|Articles|Comments Off on Scale on Principles, Not on Policies: How to Manage Type-1 vs Type-2 Decisions

Four Criteria for Making Great Hires and Promotions

I’m writing this short article for any manager who is looking to make a new hire or is considering someone for a promotion. There are four criteria you should be basing every new hire or promotion opportunity on. Time and time again, I have seen the wisdom of this approach. Think of these criteria like a checklist. When considering a new hire or promotion, work through your checklist in this order of priority:

#1 Values

Values are a person’s deep-seated beliefs that motivate their behaviors. The question you’re seeking to answer when assessing a candidate’s core values is if their personal values are in alignment with the organization’s core values. There are tests you can give to candidates to help ascertain their values but in my opinion, the only way you can really get a sense for someone’s soul is to spend time together. Why have they made the key decisions in their life? Who are they at their core? It’s why we date before we get married. The more senior and critical the hire or promotion is to the organization, the more time you need to spend dating.

#2 Style

Style is how the candidate thinks, behaves, and approaches challenges and opportunities. Each of us has a style or a unique way of managing the world. Some styles are exceptional at being tactical, detailed-oriented, and executing a process. Other styles are better at being strategic, conceptual, and results-oriented. Don’t ask a fish to climb a tree. You can learn more about styles and their relative strengths and weaknesses by playing around with the World’s Fastest Personality Test. Or, you can compare the style of a candidate with the needs of an open role by test-driving the PSIU Talent Management Suite.

#3 Skills

Skills are the technical capabilities the candidate brings to the table. For instance, if you’re hiring for a sales role, the skills question you’re seeking to answer is, “Does this candidate have high sales skills or the natural ability to develop those skills?” My preferred method to assess for skills is to have the candidate audition for the role. It’s not enough that they tell you; they need to show you. This is why athletes do try-outs, aspiring chefs cook up a meal for the owners, and actors audition for parts. It’s a skill test. In the example of the sales hire, I would run a mock sales call and see how the candidate performs.

Note that many skills can actually be trained and developed rather quickly but style and values are much more ingrained. In practice—especially when up against project deadline and resource pressures—most of us tend to sacrifice values and style fit to find someone who has past experience (a proxy for skills). I’m just as guilty of this as anyone. But every time I’ve hired like this out of expediency, it came back to bite me in the ass. It ended up costing more in time, energy, money, and lost opportunities than if I had never made the bad hire in the first place. Always try to prioritize first for values, then style, and then skills.

#4 Comp

When thinking about comp, you should consider the total compensation that the candidate demands. The kicker here is that, if the first three criteria are a match, then you also don’t have to pay above market rate to recruit this candidate or secure this promotion. Often, the right candidate will come on board for the new role for less than market. Why? When it’s the right candidate, they will be attracted to the whole picture. If you know basketball, you might think of Kevin Durant, who took substantially less comp from the Golden State Warriors than he could have gotten elsewhere. The reason why is that everything about the role—including the culture, style, and skills—were a great match for both sides. There are many forms of compensation. Your job is to paint a full picture of the total comp for the candidate.

Putting It All Together

I’ve written about these four criteria in-depth in my book How to Think About Hiring: Play Smarter to Win the Talent Game.

In the book, I take these same four criteria and combine them to create a picture of a “draftboard” to show how each candidate stacks up against your target or ideal profile. This makes your process very simple. Basically, your goal is to work through your checklist to determine where a potential draft pick fits on your board compared to the other candidates. If you’d like to learn more about the draftboard, just click here. Otherwise, I hope you find these four criteria—Values, Style, Skill, and Comp—helpful in making your own, smarter hiring and promotion decisions.

Continue to Lex’s blog ==>>

By |2020-01-06T08:25:07-08:00January 13th, 2018|Articles|Comments Off on Four Criteria for Making Great Hires and Promotions

It’s Not a Problem to Solve. It’s a Polarity to Manage.

I saw this image circulating around social media last week and I had to roll my eyes:

It’s not because I don’t believe in the values of “new management” thinking. Quite the contrary. It’s that making the shift from “old management” thinking to “new management” thinking is not a problem to solve. It’s a polarity to manage.

A problem is something to be dealt with or overcome. A polarity, on the other hand, is something to be managed on a continuum. Basically, anytime you are dealing with things that seem at odds with each other or paradoxical, you’re dealing with a polarity and not a problem.

Take the first line in the viral image above as an example. Are employees your biggest risk or your biggest asset? The answer is both! Hire the wrong employee or lose control of your HR compliance function and it won’t be too long before you’re served a very expensive and frivolous lawsuit. On the other hand, if you treat your employees like they’re not your greatest asset — like they can’t be trusted to use their common sense or act in the best interest of the company — then you’re going to engender a lot of resentment and apathy.

This meme, which is generating thousands of likes and shares, portrays New Management Thinking as the solution to the problem of Old Management Thinking. It’s actually not the solution. There is no problem to solve – just a polarity to manage.

Don’t treat polarities as problems to be solved or pay the price. Why? Because when a team treats a polarity to manage as a problem to snuff out — chanting all the while “Down with hierarchy!” “Down with meetings!” “Out with the old and in with the new!” — one polarity will be emphasized too much and the organization will experience even bigger problems.

A team like this wastes an inordinate amount of time and energy on the wrong things, leading to a lot of activity and little effectiveness. Their misguided efforts also make it harder for the good and necessary aspects of the opposite polarity to exist within the organization. The end result is an organization that is less resilient and adaptable to change.

As a leader, being able to discern the difference between a problem and a polarity will help you to build a culture that makes the right decisions about the right things. This is true even if, from an uneducated eye, those efforts can sometimes appear to be in support of “old” ways of thinking. But they are not old ways of thinking! You are just boosting up an aspect of a polarity that is needed in your organization at this period in time. Later on, you may boost up “new” ways of thinking, depending again on what’s really needed. Let’s see how to do that…

Polarity Mangement

There’s a book I like that does a good job of recognizing the difference between a polarity and a problem and how to leverage the best aspects of both sides of a polarity. The book is appropriately titled Polarity Management, by Barry Johnson.

In a picture, polarity management works like this. Draw a 2X2 matrix and put the poles or the extremes of the two polarities on the horizontal axis as Pole A and Pole B. Write “Positives” at the top of the vertical axis and “Negatives” at the bottom. Then identify in the top quadrants the positives of each pole and in the bottom note the negatives that come from an overemphasis of either pole. Finally, draw some butterfly wings that meet in the center of the quadrants with arrows in the left wing going counter-clockwise and arrows in the right wing going clockwise, to show the flow between polarities.

Going back to the meme that started this article, a polarity map of “old management thinking” vs. “new management thinking” would look something like this:

What does this map tell you? As a leader, your goal is to manage the polarity. This means leveraging the best of old management thinking and new management thinking while avoiding the extremes of both. If you find that the organization has emphasized one polarity too far, then you know you need to bring it back the other way by driving the organization towards the top of the other polarity.

In this example, if you found that your organization was too chaotic, free-wheeling, or producing too many errors (the negatives of new management thinking), then you know you need to add a bit more clarity, accountability, leadership, and performance management to bring it back the other way (the positives of old management thinking).

On the other hand, if you noticed that your organization was too bureaucratic, political, or stagnant (the negatives of old management thinking), then you’d need to break some glass and shift the organization’s polarity up the other side to have more transparency, autonomy, and trust (the positives of new management thinking).

The goal of polarity management is to be astute enough as a leader to get the positive sides (above the red horizontal line) of both polarities while avoiding the negative sides (below the red line) of each one. Put another way, you’re seeking to balance the organization so that it’s on the top half of the red horizontal line and doesn’t fall off into an abyss on either side.

OK, that makes a lot of sense in theory. However, sometimes it can be challenging to break a situation down into just two polarities. Life and work are messy and complicated. What is the polarity you are really dealing with? It can be hard to tell.

The good news is that if you like the principles behind Polarity Management but seek an easier “map” that tells you what you are really dealing with, you will find my Organizational Physics model very useful. The model can make recognizing and managing polarities in your organization much easier. Here’s what you need to know…

Organizational Physics and Polarity Management

When I set out to create Organizational Physics, one of my primary goals was to identify the underlying patterns that drive all organizational behavior and show how to improve performance. You can think of Organizational Physics as an ultimate meta-framework. It explains all other management theories (at least the good ones) and puts the different camps in their respective context. So naturally, Organizational Physics is rich with polarities.

Some of the main polarities within Organizational Physics include the dynamic tension between the need to be well integrated with the surrounding environment while managing things falling apart (Universal Success Formula). There’s also the polarity between organizational development and stability (Lifecycle Strategy). And there’s the polarity between making good decisions and implementing them fast (The Physics of Fast Execution).

However, one of the best parts of Organizational Physics is that once you understand the framework, it makes managing your organization much easier and even allows you to anticipate what happens next in its development. In this regard, understanding the Four Forces of Management – Producing, Stabilizing, Innovating, and Unifying — within Organizational Physics is not only useful, it’s the ultimate polarity management framework.

The principle behind the four forces of management – Producing, Stabilizing, Innovating, and Unifying — is that every complex adaptive system, from an individual to the world’s largest company, must at a minimum do four basic things. It must shape its environment and respond to change and it must manage its entire system, including the parts or tasks that make it up. In a picture, this means that at a fundamental level every system is managing these two basic sets of polarities between shape/respond and whole/parts:

  • The Producing Force is what gives an organization its drive to produce results for clients.
  • The Stabilizing Force is what brings order and repeatability to the organization.
  • The Innovating Force is what gives an organization its drive to find creative solutions and new ways of doing things.
  • The Unifying Force is what brings cohesion and unity to the organization.

The picture below shows how each force or polarity has a different time horizon, approach, pace, and orientation. If this image doesn’t make much sense to you yet, you can learn more about each force and what it does in Part II of Organizational Physics or play around with the World’s Fastest Personality test and see how these forces show up in individual personality styles.

*** Please note that this image above has NOTHING to do with the four quadrant approach from the book Polarity Management. That is, that book shows how to break a polarity down into two dimensions. I’m going to show that most polarities can be understood across four dimensions total. This means that there is no horizontal red line above which you are trying to manage. Put another way, I am NOT saying that the Stabilizing and Producing forces are the positives and the Unifying and Innovating are the negatives. Quite the contrary, what this new vision means is that you are seeking to get the best of all polarities for the lifecycle stage of your system.***

Because, at any given point in time, every system must manage these polarities with finite energy, when one pole is really strong, another will be weak. In other words, the system will exhibit some tell-tale, predictable behaviors. Here’s how you can use that knowledge to your advantage…

Polarity Management Made Simpler

Once you understand that every organization is managing these four polarities — Producing, Stabilizing, Innovating, and Unifying — it’s much easier to place any set of polarities in their proper context and have a deeper sense of what to do next to improve organizational performance. Put another way, once you understand this framework, you have four dimensions to engage in polarity management vs. just two. Here’s what your new map looks like:

What this map shows is that a healthy, high-performing organization will have the right mix of forces for its lifecycle stage, as shown in the dark and light green circles. But push one polarity too far or at the wrong time to the red ring of the target and your organization will start to exhibit some negative, counterproductive behaviors. It’s a lot like driving a car. You’re trying to keep the engine humming by having the right mix of fuel and performance without taking one polarity too far (into the red) or you’ll burn out the engine.

What’s cool and useful about the above map is that you can use it to scan your organization and get a quick sense if one or more forces are too far out of whack. Then based on this awareness you can give the system more of the missing force, which will bring the organization back more towards the center of the target. Most situations you’ll come across in both work and life will fit somewhere on the above map!

For instance, if you were to notice that part of your organization can’t see the forest for the trees or is close to burnout from the constant short-range time pressure, you will see that the Producing force is out of balance in the upper right quadrant.

What should you do? Well, it would depend, of course, but using this map you would know you need to back off the Producing force and focus your efforts in one of the other areas first. You could add some more Stabilizing force to the system (through a better process or tools that reduce the workload); you could boost up the Innovating force (clarifying the strategy and big picture with the team); or you could focus on increasing the Unifying force (connecting and processing together as a team to reflect, renew, and recommit). Or some combination of these.

Going back to the first scenario that started this article, let’s say that an employee says to you, “We need more New Management thinking vs. Old Management thinking.” With this new map you can quickly ascertain that they are likely saying that the organization needs to develop its Unifying and Innovating forces (the bottom half of the map) over its Stabilizing and Producing Forces (the top half of the map). But you also know by now that this is not a problem to solve – it’s a polarity to manage without taking things too far in one direction.

Or, if your board member argues that the company needs to improve its sales process because it’s not scalable, you know that they are oriented towards the Stabilizing quadrant. While you might boost up the Stabilizing force with more focus on process and systems, you wouldn’t let it go too far out of whack so that the process takes over and the sales team loses its Producing force because it’s trapped in a bureaucracy.

One more example — your spouse tells you that you are working too much. What does this mean? He or she wants you to Unify more with the family. Is this a problem to solve? Nope. You get it. It’s a polarity to manage! So because your marriage and family are important to you, this coming weekend you’ll back off of your Producing force, put down your phone, and invest some quality time Unifying with the family. Everything is a trade-off and the basic idea is to not let one force get too out of balance for too long or you’ll suffer the (predictable) consequences. Instead, strive to manage the polarities and avoid the extremes.

One thing to keep in mind as you navigate the polarity map above is that if one force or pole is too far out of balance, you don’t add more energy and effort to improving that pole! Instead, you give energy and effort to its complementary pole. For instance, if your culture had turned toxic and there was a lot of infighting (an imbalance in the Unifying force), you would NOT take the team into a feel-good kumbaya team-building session. This is just adding more fuel to an over-hot Unifying force.

Instead, you would look to boost up one of the other three complementary forces depending on the needs of the organization. To boost up the Stabilizing force, you might bring more process or regimen to how the team interacts. To boost the Producing force, you might identify a big market challenge to get the team to focus more on external client needs and creating new client wins instead of internal politics. Alternatively, you might work with the team to align around a new vision and strategy — something that transcends petty politics — which would boost up the Innovating force.

In summary, if your company starts to treat a polarity as a problem to snuff out, it’s going to have a host of even bigger problems. Instead, try to recognize the general Producing, Stabilizing, Innovating, or Unifying quadrants that the organization’s current behavior is coming from. If it’s getting too far out of balance in one area, back off that area while boosting up another force. This will help to bring the organization back towards balance. Extremes will happen naturally, so your job as a leader is managing them to leverage the best that healthy polarities have to offer.

By |2017-06-28T01:08:16-07:00May 17th, 2017|Articles|Comments Off on It’s Not a Problem to Solve. It’s a Polarity to Manage.

Top-down vs. Bottom-up Hierarchy: Or, How to Design a Self-Managed Organization

top-down-hierarchy-vs-bottom-up-designShould you run a top-down or a bottom-up organizational design?

Choosing “top-down” means giving the roles at the top of your organization significantly more control over key decisions than those lower in the hierarchy. Choosing “bottom-up” means having little to no centralized control so that those doing the work are free to organize, make decisions, and perform as they best see fit. Both camps have their own justifications.

The extremists in the top-down camp believe that an autocratic, hierarchical style of command-and-control decision-making is necessary for an organization to be successful and fulfill its purpose. In this case, strategies or plans are first conceived at the top of the organization and then cascaded down into the organization for implementation. When decisions from the bottom need to get made, they must first go to a qualified manager for approval. Deep down, the proponents of a top-down structure believe that if there isn’t an appropriate level of centralized control, the inmates will soon be running the jail and chaos will reign.

The top-down camp believes that without leadership and structure the whole enterprise will fall apart.

The extremists in the top down camp believe that without a high level of centralized control the whole enterprise will quickly fall apart.

The extremists in the bottom-up camp believe just the opposite — that most forms of hierarchy are unnecessary and inefficient (if not outright evil). Their view is that a top-down hierarchy separates authority from those actually doing the work. Therefore, at its best, a top-down approach leads to cultures of disempowerment, resentment, and bureaucracy. At worst, it gives birth to autocratic tyrants who wield unchecked power, enriching themselves and their families at others’ expense.

The extremists in the bottom-up camp believe that most forms of hierarchy lead to tyranny.

The extremists in the bottom-up camp believe that most forms of hierarchy lead to tyranny.

So who’s right?

Well, if you were to gauge the current zeitgeist in business and popular culture, you’d get a strong sense that the bottom-up camp is right camp to be in. Best-selling books and viral articles get published regularly that bemoan the old paradigm of top-down command and control as “so-last-century” while promoting an emerging new paradigm of self-managed, egalitarian organizations without bosses, titles, or anyone telling you what to do. Ahhhh. So refreshing.

But is it true? Let’s see…

Reinventing Organizations from the Bottom Up? Not Quite.

Reinventing_OrganizationsThe bottom-up camp loves to use the term “self-managed organization” to describe their ideal. A good example of the excitement surrounding the movement is the book Reinventing Organizations by Frederic Laloux. Laloux captures some of the elements of self-managed organizations and references companies like AES, Buurtzorg, FAVI, Holacracy, MorningStar, Patagonia, Semco, Steam, W.L. Gore & Associates, Whole Foods, Zappos and a few others. He makes the case that as the leading edge of global consciousness evolves, so too will new forms of organizational design that emerge to support it.

While I appreciate the ethos and intent of the bottom-up camp, there’s something that strikes me as counter-productive in it – namely, an almost cult-like aversion by its operators and proponents to anything that could be perceived as top-down hierarchy, structure, and authority.

I’m sure you’ve seen this trend already. The headlines scream “no-bosses, no-titles!” The org chart shows a series of concentric circles, a constellation of stars, or even a tree of life. The stories and anecdotes that circulate around the movement are usually about how small groups of peers self-organize — without the tyranny of managers — to create breakthrough results.

This aversion to hierarchy, structure, and authority is ironic because, if you were to peek behind the curtain of a high-performing, bottom-up, self-managed, seemingly egalitarian, set-your-own-salary-and-work-schedule, next-generation-consciousness company — what you’d find in actuality is a well-run top-down hierarchal organization!

Wait… what? Yep, that’s right. The best of the self-managed organizations are fundamentally top-down hierarchies in disguise. In order to explain why, I first need to clear up a common misconception about the top-down approach.
(more…)

By |2020-10-21T02:35:10-07:00October 13th, 2016|Articles|Comments Off on Top-down vs. Bottom-up Hierarchy: Or, How to Design a Self-Managed Organization

How Full is Your Trust Battery?

Trust_BatteryIn a recent New York Times interview, Tobi Lutke, CEO of Shopify, used the term “trust battery” to refer to something that we’re all familiar with but we may not always articulate well: monitoring the current level of trust between people.

As you undoubtedly know, there are few things that can hinder success in an organization as much as a lack of trust. Using the metaphor of trust battery is a clever way to think about and communicate the importance of trust in your organizational culture and using it can make some hard conversations easier too.

Here’s how the trust battery works…

Every time your work with someone, the trust battery between you is either charged or discharged. When the trust battery between you is high, then the work gets done smoothly and quickly. When the trust battery is low, everything deteriorates.

When you start working with someone new, like a new hire, then the trust battery between you is charged at about 50 percent. You’re not really sure what to expect but you also give the benefit of the doubt and try to keep an open mind. Over time, if your interactions are positive, the trust battery fills up. If not, it drains.

Depending on its level of reserves, the trust battery can drain slowly or quickly. If you’ve worked with someone for a long time, have many positive shared experiences and a high degree of trust, then even if this person starts acting differently, the trust battery will drain more slowly. “Hmmmmm, Sam doesn’t seem like himself lately. He’s always been on time and now he’s late. I wonder what’s going on with him? I better check in and see if he needs anything.”

On the other hand, if it’s a relationship with low trust reserves already — like a new hire who clearly doesn’t cut it or a long-term relationship with a history of negative behaviors — then that battery drains very quickly. “Damn that Sam. He’s never delivered and he never will. He says one thing and does another. Why hasn’t he been fired yet?”

The trust battery works between groups too. For example, in your own organization, have you examined the trust level between sales and marketing? How about between customer service and engineering? Or between the CEO and the rest of the company? If you sense that the trust battery is running low between groups, I can almost guarantee that your company it not executing to potential – and it would be wise to take corrective action.

To be sure, we all have an intuitive sense for this already – it’s just how humans work. But calling it out makes it easier for everyone in your culture to understand and model. It also makes having difficult conversations easier and more constructive.

For instance, let’s say that Sam didn’t deliver on an important project. Confronting him with a statement like “Sam, you’re not trustworthy,” would only make him defensive. You would have an ever harder time restoring trust this way. With a shared company metaphor like the trust battery, you can make a more effective statement like: “Sam, my trust battery with you is really low right now. You said you’d get me this deliverable and it didn’t come through. Help me understand why because I want my trust with you to be high.” Sam’s not likely to be as reactive and it’s a much easier conversation to navigate, right?

As you teach your own organizational culture about the trust battery concept, it’s natural for a discussion around behaviors that build or destroy to trust to emerge. For me, these behaviors are self-evident. They’re really life lessons I heard from my grandmother.

Treat others with respect. Say what you mean, mean what you say. Listen twice as much as you talk. Follow through and follow up. Promise made, promise delivered. Be a master at your craft. And so on. These are all cliches for a reason — they’re behaviors that build trust and that we commonly believe to be desirable.

One thing that may need to be made clear – especially to younger staff – is that trustability is not the same as likability. I don’t have to like you in order to trust you, and vice versa. Some cultures confuse this by acting nice and friendly on the surface while avoiding harder conversations underneath. It’s these very conversations that are necessary to rebuild and reenergize mutual trust.

If you’d like some more ideas on starting the conversation on trust building with your own team, check out the Speed of Trust mini-lesson 13 Behaviors of a High Trust Leader or this list of 12 Leadership Behaviors That Build Team Trust by Ekaterina Walter at Forbes.

There’s a final reason I like the trust battery metaphor. It ties directly into the Organizational Physics Universal Success Formula that I find so effective. The formula states that when entropy (a measure of things falling apart) is high in the system, success is going to be low. Put another way, there are few things that cause entropy in your company to rise faster than mistrust among individuals and groups.

So as ever, in order to maximize the gains, keep the drains low!

By |2016-06-11T19:20:14-07:00June 21st, 2016|Articles|Comments Off on How Full is Your Trust Battery?

If You Give a Man a Hat, Take Away His Incentives

Balancing multiple competing accountabilities is hard to do.

Balancing multiple competing accountabilities is hard to do.

… Take away his incentives…wait…whaaaaaat did I just say? Let me explain.

One of the key concepts of Organizational Physics is that growing your business from the Nail It to the Scale It stage usually requires a change in organizational structure.

Changing structures, roles, accountabilities, and reporting relationships is a big undertaking. It’s a pre-requisite to scaling up but it can be hard to get it right. It also takes time and energy to integrate the new design.

When a growth company doesn’t yet have the resources to hire out its full team for the new structure, it’s a common practice to assign multiple roles or “hats” to existing leaders.

The idea is this. Until the company can afford to find and hire a dedicated replacement, a few leadership team members are assigned accountability to execute across multiple functions at the same time. Once a replacement can be made, the hat is taken off and given to the new dedicated replacement.

Some common examples of hat wearing that I see in companies in the Nail It stage include:

  • The head of Sales wears the hat of head of Marketing. Once a head of Marketing is hired, the head of Sales can return to focusing 100% on sales.
  • The CEO wears the hat of head of Strategic Alliances. When the business warrants a dedicated Strategic Alliance role, the company makes that hire.
  • The head of Admin wears the hat of head of Recruiting and People Development. When the company has the resources, it creates two distinct roles: one for liability prevention and one for recruiting and cultural development.
  • The head of Software Engineering wears the hat of head of IT/Tech Ops. Once the company has the resources to hire a dedicated head of IT/Tech Ops, the head of Software Engineering can go back to focusing fully on driving external software development.

There are other examples. Obviously, hat wearing isn’t ideal. In all of these instances the organization is violating a principle of structure. This is because they’re combining effectiveness roles with efficiency ones, long-range roles with short-range ones, or roles that need more decentralized autonomy with those that need more centralized control.

In other words, while hat wearing can be useful and necessary, you should always view it as a temporary measure. It sacrifices some focus and energy in the people wearing the hats (and the company as a whole) in exchange for short-term cash flow savings and buying time to find the right new hire or promotion. Basically, only deploy hats when cash or time is too tight.

That said, if you are deploying multiple hats, you should keep in mind a simple concept that will increase organizational effectiveness during a time of transition. It will also help your hat wearers to be successful in their multiple accountabilities. This concept applies only to those in jobs that have performance-based incentives.

The concept is this: Convert any performance-based incentives for those wearing multiple hats to base compensation, including any incentive compensation they would have likely earned if they had performed just their major role.

Here’s an example. Let’s say that you are the CEO of a fast-growing company with $15M in revenue and Joe is your head of Sales who runs the entire sales team. You have enough cash flow to make some smart business investments but not enough to hire or invest willy-nilly.

The rapid business growth is putting a strain on the culture and hiring. To compensate, you decide to create a new role called head of Culture and People Development with accountabilities for cultural events, recruiting and on-boarding, and cross-functional staff development.

You can’t justify hiring a full-time person for this position right now so instead, you ask Joe to continue to lead the Sales function and take on the newly formed Culture and People Development function. You justify this decision because it’s intended to be for one year only and Joe is your best cultural leader. Joe’s base salary as head of Sales is $150K. He earned $100K in sales commissions last year and is projected to earn the same this year.

Since Joe is now temporarily wearing two hats, what I’m proposing is that you should temporarily convert his existing sales commission plan and pay him base compensation of $250K (what he would earn if he hit his full sales targets this year), for as long as he’s wearing both hats.

Does the idea of taking away your head of Sales incentive plan make you feel queazy? It should. But if you are committed to driving your business to its scalable potential – and if Joe really is your best choice to wear the hat for Culture and People Development – then that’s exactly what you should do.

Why? Because if you give Joe both roles but keep the old incentive plan in place, despite his best early intentions to do well at both, he will likely do worse. The role with the explicit incentives (in this case, Sales) will always dominate his energy and attention, even if it causes harm to the development of the business. At the same time, even though he’ll give Sales most of his efforts due to the incentives, he’ll likely do worse at both roles because of the increased demands placed on him.

However, if you were to pay him a healthy flat wage and trust his intrinsic motivation to lead and oversee both roles – Sales and Culture and People Development, then he has a chance to do well at both roles in the interim. You’ll notice that without incentives, he’ll start to act less like a hammer and more like a lever. He’ll do better at developing the bench in both departments. He’ll see the big picture and make decisions that are best for the business in the short and long run.

Why is this the case? Wearing multiple hats — leading multiple, competing priorities — is hard to do. Short-range priorities like Sales will naturally overpower longer-range needs like Culture. Sales requires a hunter style; Culture a harvester one. Navigating these inherent conflicts puts a tremendous burden on the leader and on the company.

If the organization is going to achieve escape velocity, then Joe needs to be able to reconcile these conflicts, adapt his own style, develop the next generation of leaders, and execute well on both roles at the same time. Performance incentives don’t help in a scenario like this. They hinder.

For instance, if you were a professional soccer coach and your best athlete was a striker, you’d be hard-pressed to ask him to play defense too. You might justify it, however, if you were getting a lot of goals scored against you and you didn’t have other capable players. Now imagine that you ask the striker to make that change but also keep his existing goal bonus in place. How much defense are you going to get? Not much, and it will probably be erratic. But if you were to take away his goal-scoring bonus and just pay him as if he hit his quota anyway, then you’d get a more balanced player and true team leader.

Assigning hats in business is the same. Over time, it’s hard on the player and it’s hard on the team. You need to rely on the intrinsic motivations of the people wearing the hats and create an environment where they can do what’s right for the business’ sustained performance. Performance incentives hinder this by causing the leader to sacrifice one function for the other because the one with the explicit incentives will always win out.

Frequently Asked Questions (FAQ):

This concept of rolling performance incentives into healthy base compensation for hat wearers is simple but it usually raises some questions. Below are answers to some of the most common questions to help you think this through:

1. Why have any performance incentives at all?
Good question. There’s lots of evidence that — especially for creative, team-based collaborations — performance incentives cause more harm than good. Your business and culture may not need or have any performance incentives. If that’s the case, there are no incentives to take away or convert. Without incentives in one area, it’s much easier to move people in and out of hats.

2. Don’t I actually have to pay the hat wearer more to run multiple accountabilities?
No. I would argue that if you ask someone to wear a temporary hat and they reply with “pay me more money,” you’re not asking the right person. You’re dealing with box #3 Mercenaries/Specialists and they should be left alone to focus on their singular task.

3. Shouldn’t I create new performance incentives for all of the multiple hats instead?
No. You’re creating more complexity that’s harder to manage and harder to change when it’s time to take the hat off. Keep it simple. If you are committed to performance incentives, then keep them at the macro-level, like profit sharing or stock options, but don’t try to micro-manage incentive-based performance.

4. It seems really stupid to ask the head of Sales to also take on Culture and People Development. Do you recommend this?
No, I don’t recommend this. I was just sharing an example (one I have seen before). Again, hat wearing is not ideal but you have to play the cards in your hand.

5. Why have role accountabilities and hats at all? Why not just create a self-managed organization where people can shift in and out of roles across departments at their own volition/discretion?
Good luck with that. Every high-performing organization has defined roles on a team. Those roles may be self-defined but they are defined. The principle is the same. If you want fluidity of roles and accountabilities, individual performance incentives will only harm.

6. It seems really hard to get someone who’s wearing a hat to actually take it off. How is this done?
It can indeed be hard to get someone to take off a hat, especially if it feels like a loss of status. It isn’t. You can mitigate any resistance by helping the person being asked to take off a hat to see the bigger picture and what is best for the next stage of business growth. At the same time, try to get them to acknowledge what they are exceptional at and enjoy doing. By taking off the hat, you are freeing them up to have more time and energy to do what they are most exceptional at and creates the most value for the business – i.e., their main role.

7. It is too risky to take away all performance-based incentives. What are other options?
If the thought of taking away performance incentives from a particular role or individual feels too risky to you, I would trust that and not make the change. Either don’t invest in the new role at this stage or find someone else to wear the hat – someone who gives you confidence that the can execute without extra incentives.

By |2016-06-10T20:44:03-07:00June 10th, 2016|Articles|Comments Off on If You Give a Man a Hat, Take Away His Incentives

Predictable Revenue: How to Structure the Customer Success Role

Predictable-Revenue-Book-Front-Cover-072911-hires

“We believe that the future standard for all executive teams will include a head of Customer Success who’s on the same level as the head of Sales, Marketing, and Demand Generation.” – Aaron Ross

If you run a software-as-a-service (SAAS) business, you might already know about the core concepts behind Aaron Ross and Margaret Tyler’s book Predictable Revenue. Aaron Ross learned his craft as the head of customer acquisition for Salesforce.com and this book seems to have become the hot new bible for scaling up the revenue side of a SAAS business.

The main theme of Predictable Revenue is that the single most important thing a SAAS business can do to scale revenues is to segment its Sales roles into distinct focus areas and also to create a new role in the organizational structure called “Customer Success” that is dedicated to making existing customers successful and driving renewals.

Lately, I’ve been getting asked frequently in my consulting practice about how to structure the Customer Success role. My sense is that there is some confusion out there about the distinction between Account Management and Customer Success. In this article, I’m going to show you how to use the principles of Organizational Physics to actually structure the Customer Success role so that your own SAAS business has the greatest probability of realizing its potential.

Role Segmentation: Always a Good Idea

Predictable Revenue argues that the major role of Sales is actually four roles that need to be segmented in the organizational structure:

  • “Inbound Lead Qualification” to qualify new leads coming into the business;
  • “Outbound Prospecting” to create and qualify new sales opportunities and then pass them to Sales or Account Executives to close;
  • “Account Executives or Sales” that close deals and carry a quota;
  • “Account Management/Customer Success” which is a role dedicated to making existing customers successful and driving renewals.

Does it make sense to segment these different sales roles? Absolutely. In fact, you should define and segment all of the major roles and most of the minor roles in your entire business — not just sales.

Segmenting by roles greatly supports scaling your business. It helps to create role clarity and accountability. It allows the right style of people to focus on the most important things for their roles. It significantly improves the hiring process. And with the right management process, it can significantly increase execution speed.

Predictable Revenue encourages the segmentation of sales roles earlier than one might think and I totally concur — but again, for all roles. Technically I would start to think through your organizational design and role segmentations in the mid- to late Nail It stage of business development. Heck, it doesn’t even cost anything to segment by roles if you don’t have the budget to hire for it. Some of your staff can wear multiple hats until you do.

So how should you actually structure the four specialized roles defined by Predictable Revenue? The first three are easy. Outbound Reps, Inbound Lead Qualifiers, and Account Executives/Sales should go under the head of Sales. This makes sense intuitively. All three of these roles are about being effective in the short term and building and managing revenue-driving relationships. They also benefit from being under a single head of Sales.

But what about the fourth role of Account Management/Customer Success? This is the role that’s creating all the buzz (and I think some confusion) — how do you actually structure that? Here is where I differ from Ross and Tyler. From my experience, Account Management and Customer Success should not be thought of as one but as two distinct roles. If you structure with this in mind, you’ll have a much easier time filling both roles and getting to scale.

Account Management & Customer Success are not the Same Role

Below are two pictures of a simple business-to-business SAAS structure. They are meant to illustrate how a scalable organizational design will keep Account Management under Sales and treat Customer Success as its own major function.

This organizational design is based on the 5 Laws of Structure in Organizational Physics and places the major functions of the business in their correct relative locations based on the competing needs of short-/long- range view, efficiency/effectiveness, and autonomy/control.

The first picture shows the ten major functions of this business in grey: Strategic Execution, Strategic Finance, Sales and Account Management, Product Management, Customer Success, Technical Operations, Software Engineering, Marketing, Strategy, and Admin. (Every structure is unique, but these are some basic major functions you would typically find in a B2B SAAS company.)

The second picture just zooms in on the Sales & Account Management, Product Management, and Customer Success roles:

How to Structure the Customer Success Role (2)

Account Management and Customer Success are NOT the same function. Keep Account Management under Sales and elevate Customer Success to its own major function.

Account Management and Customer Success are NOT the same function. Keep Account Management under Sales and elevate Customer Success to its own major function.

Before I proceed, I want to remind you that an organizational structure is not the same as an org chart. What this picture above is showing you is that this SAAS business has ten major functions. Each function has a PSIU code and a set of key performance indicators (KPIs) in blue. If you are unfamiliar with the PSIU code, it’s really helpful in designing your own organization to scale and making smarter hires. You can learn more about the PSIU framework here. It should also be clear that I am not designing for silos, but for unarguable accountability and cross-functional transparency.

Keep Account Management Under Sales & Make Customer Success its Own Major Function

OK, so why have I placed Account Management under Sales and not created a joint Account Management/Customer Success role as originally proposed by Predictable Revenue? The answer is that Account Management is a revenue-driving relationship role and Customer Success is a revenue-driving systems role. You will create more clarity, focus, and role fit and scale more easily by keeping these roles separate.

It seems to me that the authors of Predictable Revenue understand these differences intuitively. Even though they define Account Management/Customer Success as one function, note the subtle but important differences in their own definitions taken from their blog:

Account Management/Customer Success: Account Management usually implies a quota-carrying salesperson working with current customers. Customer Success implies someone without a quota (that is, unbiased) whose job is solely to help customers get more value from your product, whether through hands-on help, education and training, etc.”

If you can conceptualize Account Management and Customer Success as two distinct roles rather than one, it suddenly gets pretty easy to figure out how to structure them both.

You’ll want a single head of Sales and Account Management overseeing Inbound Lead Qualification, Outbound Prospecting and Account Executives/Sales, as well as Account Management. Specifically what I mean by Account Management is Key or Strategic Account Management focused on building relationships, being the voice of key customer needs, and driving recurring and upsell revenues from your largest and most important accounts.

If your business does not have customer tiers, then you won’t even need the Account Management role – and note that neither Key Account Management nor Customer Success are the same thing as Customer Service. Customer Service is the role that provides low-level user support at an affordable cost. Account Management and Customer Success, on the other hand, are revenue-driving roles.

In addition to the head of Sales and Account Management, you’ll also want a head of Customer Success that oversees Client Onboarding, Client Training, Client Analysis, and Client Experience Optimization. Notice that all of these sub-roles require a systems approach. They need analysis. They need to be the voice of all customers, not just the largest ones. They also need to drive revenue by ensuring that all clients are activating the product, understanding and using it, and finding insights in usage analytics that help drive overall product improvements that increase usage and renewals.

3 Breakdowns that Happen When You Combine Account Management & Customer Success

There are 3 major types of breakdown that occur when you combine Account Management and Customer Success into a single role. They are breakdowns in focus, style, and time horizon.

Breakdown in Focus
Think about it. The entire ‘Customer Success’ movement was born from Ross’ and others’ recognition of a simple fact: Companies without a function focused on engagement and renewals from existing clients fail to scale because they focus too heavily on making new sales. It’s a classic symptom of trying to Scale It before Nailing It.

On the other hand, companies that combine Customer Success and Account Management, end up with similar problems, sacrificing the product experience of the many accounts (Customer Success) for the needs of the few key accounts (Account Management). Account Management ends up overpowering Customer Success or vice versa.

Again, the Account Management role is a relationship role that needs to focus on the needs, aspirations, and renewals of key accounts. Customer Success is a systems role that needs to focus on the needs, aspirations, and renewals of all accounts. Keep them separate and put the right focus, leadership style, and KPIs in each area.

Breakdown in Styles
The PSIU style and approach of a world-class Key Account Manager requires a high drive to Unify or create rapport and connect with key accounts. While we’re looking for a high drive to Produce and win new accounts from the other sales roles, we want a more Unifying approach from Account Managers who build relationships and create empathy with important clients.

You can contrast the style of a great Account Manager with the style and approach of a world-class Customer Success leader, who should demonstrate a high drive to Stabilize and Innovate, but not to Unify. The Customer Success leader excels at designing systems, analyzing data, finding efficiencies and, generally, making the entire system work better at scale.

If you were to place an Account Manager type with a high Unifier style into the Customer Success role, then you would get a lot of great customer interactions but not a lot of scalability, design insights, or process improvements. Customer Success must design and optimize systems and processes to onboard new clients, train all clients elegantly so they understand and engage with the product, and optimize the overall client experience for all clients.

In short, always try to put the right style of people into roles where they and the business can thrive.

Breakdown in Time Horizon
In addition to a breakdown in focus and styles, there is also a different time horizon for Account Management versus Customer Success. Account Management will always be under tremendous short-range pressure to meet key account needs and drive new revenues from their portfolio of accounts. It’s about relationships – and the needs of the most pressing and important relationship should always take precedence.

Customer Success is going to be under a lot of short-range time pressure too but you want to design the organization so that Customer Success doesn’t collapse under this short-range pressure. Customer Success must keep a medium-range time orientation (e.g., the next 3 to 6 months, not the next 3 to 6 weeks). If not, then it will start acting more like an Account Manager being whip-sawed by the needs of key accounts and less like the head of Customer Success for all accounts.

If you take another look at the structure diagram above, you will see that Product Management is situated between Sales/Account Management and Customer Success. This is not arbitrarily so. Product Management mediates between the two functions. The purpose of Product Management is to translate, prioritize, and coordinate the competing needs, focus, and time frames that are occurring between Sales/Account Management and Customer Success (as well as the competing priorities coming from Strategy, Marketing, and elsewhere).

We want Account Management to put pressure on the company to fulfill on the needs of key accounts. We also want Customer Success to put a different pressure on the company for the needs of the overall product experience and for renewals. The role of Product Management is to to make the hard decisions that balance out those competing needs and move the business forward now and over time. If you’re interested, you can read more about the Product Management role here.

Summary

Predictable Revenue has started a broad and productive conversation that is still evolving.

Despite how it’s been defined by Predictable Revenue, I believe that Customer Success should not be placed in the same category as Account Management. While every structure is unique, it generally makes more sense to keep Account Management under Sales and make Customer Success into its own major function.

Additionally, I think that one of the important ideas in this book – role segmentation – should apply not only to Sales but to all the major and minor roles in your business.

Finally, the idea of having happy, recurring customers is obviously not new and it involves more than formalizing a Customer Success role. It’s always a total company effort that requires constant engagement, effort, and reinforcement from all roles in the company.

By |2016-03-18T03:58:57-07:00March 18th, 2016|Articles|Comments Off on Predictable Revenue: How to Structure the Customer Success Role

Rethinking Product Management: How to Get from Start-up to Scale-up

I earn my living as a scaling coach to expansion-stage companies. One of the advantages of my position is that I get a deep, inside look into different industries and businesses. While no two situations are exactly alike, I have seen a consistent yet under-reported issue out there that keeps 9 out of 10 companies from getting out of start-up mode to the next level.

What is it? It’s a breakdown in Product Management.

Assuming that you already have a sound strategy and execution framework in place, if you can get your Product Management function right, you’ll solve a lot of problems inherent in scaling your business. You will also have a much easier time increasing revenue growth, execution speed, agility, and profits. If you don’t get Product Management right, scaling to your potential will be much harder or even impossible.

Before proceeding, I need to call out that the problems and solutions described in this article are only applicable to a company in the late Nail It to early Scale It lifecycle stage of business development:

The Organizational Physics Strategy Map. You'll likely need to redesign Product Management in order to make the leap from Nail It to Scale It.

The Organizational Physics Strategy Map. To scale successfully, you’ll need to rethink and redesign Product Management between the late Nail It and early Scale It stages of business development.

In the early start-up stages of a business, Product Management doesn’t need to be a well-defined function. It’s just something that is organically “managed” by a product-savvy entrepreneur. At this stage, there’s a drive to find product-market fit and not much else matters.

But once product-market fit is established and the company is ready to scale up by adding new product lines, customer types, or markets between the late Nail It and early Scale It stages, that’s when Product Management should be rethought and redesigned. This article will help you do just that.

Is There a Breakdown in Your Product Management Function?

It’s pretty easy to spot a breakdown in the Product Management function in your business. Assuming that your business has already aligned around a clear growth strategy and execution framework, some symptoms of a Product Management breakdown will show up when there is one or more of these conditions:

  • Poor coordination between sales, engineering, manufacturing, and marketing
  • Haphazard quality in new product releases
  • A struggle to translate customer needs into a delightful customer experience
  • Growing revenues but little or no profits
  • Finger-pointing and blame between departments
  • Perpetually late product development
  • A strong technical product but poor product marketing or vice vera
  • A lack of organizational clarity on the short- to mid-range product roadmap
  • A visionary entrepreneur who is stuck managing product details

Now, you’re probably thinking that I’m attributing a lot of internal corporate issues to a breakdown in just one function. And I am. That’s because at its core, Product Management is a translation, prioritization, and coordination function. And when it breaks down, this has a big impact across the entire organization. Let’s see why…

Product Management: It’s Not What You Think

The term “Product Management” can mean many different things to different people. For example, does your own definition include product marketing? Product development? Product pricing and positioning? Feature prioritization? Product strategy? Brand management? Resource allocation? More?

If you’re trying to improve something, you must first start with a clear definition of what it is you’re working on. There are actually five primary product management-related functions that every business performs but are distinct functions that should be treated as such. These five functions are Product Strategy/Vision, Product Design, Product Development, Product Marketing, and Product Management. While the titles may be different in your own business, the core functions will be familiar to you.

Terms and Definitions: Throughout this article, I use a shorthand code called “PSIU” to refer to the four forces and styles present in any organization: Producing, Stabilizing, Innovating and Unifying. You can learn more about PSIU here and take the World’s Fastest Personality Test to get a basic sense of it before proceeding.

Product Strategy/Vision (psIu)

Elon Musk would make the dictionary definition of the Product Strategy/Visionary role.

Elon Musk would make the dictionary definition of the Product Strategy or Product Visionary role.

Product Strategy/Vision is the function that finds the breakthrough product opportunities in the marketplace: “Hmmm, what potentials exist out there that we can bring together in new and innovative ways and that allows us to fulfill on our purpose?” The Product Strategy leader asks this question all the time and has the answers (sometimes the right answers, sometimes the wrong ones, but opinionated answers nonetheless).

A head of Product Strategy is usually either really enthusiastic or really frustrated. Why? Because they live in the future with a vision for how the world should be. When their vision is tracking well and showing visible, measurable results, they are really excited, fun to be around, and charismatic. But when things aren’t tracking to their expectations, others’ don’t “get it” like they do, or they’re not in a position to effect the change they want to see, then they can come across as extremely frustrated or irritable.

The style of a head of Product Strategy is very Innovative or future-oriented and focused on possibility (psIu). “What if we tried this?” Or, “Why not do it this way instead?” A classic example of a Product Strategy/Visionary style is Elon Musk. Notice how Musk continually underestimates the true delivery time frame for all of his ventures – SpaceX, Tesla, SolarCity, etc.? That’s because the high Innovator style tends to live in the future and sees things for how they could/should be and naturally underestimates the nitty-gritty details.

In your own business, Product Strategy probably isn’t its own distinct title. Instead it’s a “hat” worn by the visionary entrepreneur, CEO, or CTO. There’s no wrong answer. It should go to the person most suited to holding, articulating and selling the vision and strategy. As you go through this next section, I’d like you to keep in mind the different skills and style needed to be a great Product Strategist/Visionary compared to the skills and style required for the other aspects of managing products.

Product Design (pSIu)

Jack Dorsey, CEO of both Twitter and Square, made his mark as a Product Designer.

Product Design is the function that can translate the Product Strategy/Vision into an amazing customer experience. Product Design will often speak in the language of “user experience.” They’re usually asking themselves and others, “What is the purpose of this product? What is the feeling we want to create? What is the optimal design for the best user experience?” Technically, they are well-versed in key elements of the user interface and how the product can or should interact with back-end technical systems and processes.

The style of a head of Product Design is usually a mix of Innovator and Stabilizer or pSIU. This means that they excel at seeing and articulating the product vision or strategy and how it should actually show up in end-user hands. They’ll use language like “elegant, beautifully, functional, appropriate,” and also have an intense level of attention to detail when it comes to the product experience.

An example of a Product Design style is Jack Dorsey, who is co-founder and now CEO of both Twitter and Square. The media tends to define Jack as the “next Steve Jobs.” But what I want you to notice is that Dorsey’s style is more in the detail and design of the user experience rather than the classic Product Visionary style of an Elon Musk or Steve Jobs. You can see this very clearly in Apple’s history. Apple would not have been Apple without a Jonny Ives — who is a Product Designer style — to complement the Product Vision of Steve Jobs.

Depending on your business type, Product Design likely has a title of Designer (Software) or Prototype Design (Manufacturing). The titles will be different but the function the same — to translate Product Strategy into an elegantly functional user experience. The better the Product Designer holds the Product Vision, understands the back-end technology or manufacturing process, and tunes her empathy to what the end-user desires, the better she will perform in that role.

Product Development — PsIu

Mark Zuckerberg

Mark Zuckerberg is a classic example of a Product Development type. Note that even as CEO of Facebook, he still maintains his product development focus.

Product Development is the function that transforms product designs into actual working products or, in the case of a manufacturing company, actual working prototypes for manufacturing to produce at scale. The Product Developer is constantly thinking about how to translate the concept and requirements of a product design into something that actually works and getting it produced or launched — fast!

The PSIU code for a Product Development function is a high drive to Produce or get stuff out the door and a high drive to Innovate or to be creative and disrupt the status quo. Mark Zuckerberg, CEO of Facebook, is one example of a Product Development entrepreneur. Notice that he holds the product vision (Innovator) and also gets his hands dirty writing code and getting products shipped (Producer) or a PsIu style that is common to many product savvy entrepreneurs. Even after Facebook became a $1B+ business, Zuckerberg still preferred to spend most of his time head down coding on the product while others took care of the business and coordination stuff.

Depending on the type of business you’re in, Product Development may be called Software Engineering (Software), Prototype Engineering (Manufacturing). Whatever it’s called, it is valued for its ability and capacity to produce high-quality and innovative products quickly.

Product Marketing — PSIu

peggy caption

The fictional Peggy Olson from AMC TV’s Mad Men is a classic example of a Product Marketer.

Product Marketing is the function that defines how the product “shows up” in the marketplace. A great Product Marketer is adept at using their intuition and data to artfully answer questions like, “What makes this product unique? Who is the core customer? What are those customers’ conscious and unconscious unmet needs? What is the pricing model? Through whom should we distribute? What campaigns will be effective?” And then driving forward the execution of the campaigns that bring that brand to life.

In PSIU code, the Product Marketing function needs a high drive to Produce results or get the volume of day-to-day work accomplished; a high drive to Stabilize or ensure that the brand is accurately presented to the world; and a high drive to Innovate or be creative (PSIu). One popular example of a classic Product Marketer is Peggy Olson from AMC’s hit TV show Mad Men. When watching the show, pay attention to the fact that Peggy works long and hard (Producing) into the night responding to client projects. She is also able to analyze and intuit the larger product strategy for breakthrough positioning (Innovating) and manage the details of the pitch with attention to detail, stability, and support (Stabilizing) to her boss Don Draper, who is a classic Creative Director type or a big Innovator.

In your own business, the Product Marketing function might be called just Marketing or Brand Management – even as it helps to manage a wide range of functions such as product positioning, pricing, promotion, competitive analysis, PR and creative, and drives marketing execution and more.

Product Management — pSiU

caption here

Sundar Pichai is a classic Product Manager type who was recently promoted to CEO of all of Google.

And this brings us to Product Management, the focus of this article. At its core, Product Management (“PM”) is a translation, prioritization, and coordination function. Meaning, its role is to translate “upstream” product requirements from a variety of sources including clients, sales, strategy, marketing, and R&D. It prioritizes those requirements to best meet short-range client and business needs. And it coordinates “downstream” releases so that current customers, prospects, and staff are aware of (and ideally excited by), trained on, and engaged with the evolving features and products.

This includes prioritizing Product Development and Design resources by product, coordinating with Product Marketing activities, and ensuring that the short- to mid-range product development roadmap ties into the overall Product Strategy and is clearly communicated. An outstanding PM keeps the customer needs forefront in their decisions while coordinating and allocating resources to delight those customers and achieving business objectives.

In PSIU code, the PM function needs a high drive to Stabilize and a high drive to Unify, or pSiU for short. For instance, a classic PM style who is now in the public limelight is Sundar Pichai who was recently promoted to be the CEO of all of Google when it made the recent shift to its new Alphabet structure. By most accounts, Sundar is highly respected for his ability to translate the emerging products vision, manage the gap between technical product details and user experience, and coordinate across other Google functions (Stabilizer) and also to empathize and communicate with a wide range of different and often competing interests within Google to keep things moving forward (Unifier).

Aside: Note that Sundar has a very different style compared to the more famous Google co-founders, Larry Page and Sergey Brin, who both have a high Producing and Innovating style or PsIu common to entrepreneurial founders. Sundar’s pSiU style complemented Sergey and Larry’s PsIu style very well as he was able to help translate the strategy and competing product priorities into compelling Google products while navigating the political minefields and different personalities within Google. It will be interesting to see how he fares in the Google CEO role. I think he’ll do well at managing and improving on the core products Google already has while the big “moon-shot” innovations are hoped to emerge and be commercialized from elsewhere in the Alphabet portfolio. But that’s a subject for a different article.

In your own business, the PM function may not yet exist at all, or it may be called something different. If yours is a service or contract business, then perhaps it’s called Project Management or Program Management. Regardless of the title, the purpose of this role is to translate requirements, set short-run priorities, and coordinate releases.

In the rest of this article I’ll show why the PM function may be missing or has been set up incorrectly in a business that is attempting to scale and how to do it right. It is a very critical, high-leverage function that, when executed correctly, greatly facilitates the leap past start-up into scale-up and beyond.

Now, you may quibble with how I’ve defined and described the many facets of Product Strategy, Product Design, Product Development, Product Marketing, and Product Management, and the examples of styles found in each. It’s not an exact science and you’ll find variations in different companies and situations, along with changes in style as people evolve. But no matter how you slice it, we should all be able to agree that there’s a lot happening under the label “Product Management” that should be conceptualized as distinct and separate functions.

Put another way, if you’re waiting for some mythical combination of Elon Musk, Jack Dorsey, Mark Zuckerberg, Peggy Olson, and Sundar Pichai to materialize in your company as a single product visionary/designer/developer/marketer/manager, put the crack pipe down and come back to reality. These are different functions that must be thought of and managed differently.

So yes, you want to improve your company’s ability to define, prioritize, build, release, and promote its products – but how do you know where the breakdowns are really happening and how do you catalyze a breakthrough? Now that we have our definitions, we can start to understand what to do…

The 5 Things Every Business Can Do for Product Management Breakthroughs

product-management-5-factorsThere are five basic product management tactics that every business can implement to help it scale up more easily and profitably. These five tactics are applicable to most industries and scale up situations. I’ve helped to deploy them and seen them create significant breakthroughs in revenue growth, profits, and execution speed in multiple different industries, including high tech, clean energy, healthcare, finance, services, and manufacturing.

  1. Make the PM Role a separate function in the organizational structure
  2. Delegate profit & loss accountability to it
  3. Decentralize it so that it’s close to the customer
  4. Place the right style of leaders to manage it
  5. Equip it with sound processes, metrics, and tools

You’ll notice that all five of these tactics relate just to the PM function and not to Product Strategy, Design, Development, or Marketing. Why?

In most businesses struggling to scale, there’s not usually a big gap in Product Strategy, Design, Development, or Marketing. Put another way, it’s pretty easy and aligned for the current head of Marketing to manage or hire for Product Marketing; for the head of Engineering to manage or hire more Product Development or Design resources; and for the founding entrepreneur or head of the company to manage overall Product Strategy.

It’s true that sometimes early-stage start-up employees aren’t capable of scaling to the next level but, more often, it’s because they’re overwhelmed, taking on too much of the PM role in addition to their other roles (like when the head of Product Development or Product Marketing is also the head of Product Management). When these leaders can focus on what they’re best at, they have the time, energy, focus, and skills to thrive at the next level.

However, there usually is a breakdown in how the PM role is managed in a company between the Nail It and Scale It stages. Typically, the PM role is not treated as its own major function; it does not have P&L accountability; it is too centralized; it doesn’t have the right style or dedicated leadership; or it lacks sound processes, metrics, and tools.

And if it should turn out that your current head of Product Strategy, Design, Development, or Marketing still can’t cut it after relinquishing PM duties, well, congratulations. These roles are much easier to fill once you have set up these other five elements and have clarity on the real accountabilities of their respective roles. So the early focus should be on improving the PM function as it has been defined. Now let’s dive deeper and see how to do that.

Breakthrough #1: Make the PM Role a Separate Function in the Organizational Structure

Breakthrough #1 is to treat the PM role as its own major and separate function in the organizational structure. For instance, here’s a picture of a structure for a manufacturing company. I’ve designed it using the 5 Laws of Structure but intentionally left out the PM role to make a point. Note that the major business functions are in grey and each has a blue section with basic Key Performance Indicators (KPIs) to help explain its accountabilities.

The wrong approach to scaling your business. If the Product Management (PM) role is not its own major function, a business will struggle to make the leap from start up to scale up.

The wrong approach to scaling your business. If the Product Management (PM) role is not its own major function, a business will struggle to make the leap from start up to scale up.

While Product Design and Development (under Prototype Engineering), Product Marketing (under Marketing), and Product Strategy (under Strategy) are in their correct relative locations in this structure, the PM role is missing. What do you anticipate the problems would be in a company structured like this? As the company attempts to scale, there will likely be…

  • A real struggle to translate new prototypes into manufacturing efficiently
  • Increasing conflict between Manufacturing and Prototype Engineering departments, with each side claiming that the other “just doesn’t get it”
  • Poor communication and coordination with Product Marketing, which feels increasingly left out of the picture and unsure of what’s coming out of Manufacturing and when
  • Lack of confidence across the culture that the product will do what it’s supposed to do
  • A frustrated Product Strategy function because it feels that the long-range product needs aren’t being taken into consideration in product development, which is perpetually under the gun to meet short-range needs

Have you seen some of these problems before? I bet you have. When most companies run into them, they attempt to solve them by calling out for “more product management.” However, they make the mistake of assigning product management within an existing function, usually Product Development, Product Marketing, or Product Strategy. But none of these locations in the structure are ideal and, in fact, can cause a lot of harm when attempting to scale up.

The Mistake of Co-joining PM with Product Development or Design

managing_and_doingFor example, what do you think happens in a business when the PM role and Product Development or Design roles are co-joined as the same function? That’s right, there’s a breakdown on one side or the other. If you have a technically strong head of Product Development or Design who also oversees the PM function, then you’ll likely have a fairly strong technical product that ends up being miscommunicated and that few are trained on. You will also have poor communication and coordination with marketing, sales, and operations on releases. Product Development seems confident in its own product and projections but everyone else isn’t.

On the other hand, if you have a strong PM who is also head of Product Development or Design, then you’ll likely have a really thorough product plan that is well-communicated but perpetually late on shipments. I.e, there is a lot of product planning being done but a lack of actual live, high-quality, working products shipped to customers on time. It should be clear that Product Development and Design roles and the PM role are different functions that require different accountabilities, skills, and leadership styles.

The Mistake of Co-joining the PM with Product Marketing or Strategy

run_with_the_wolvesIf you co-join Product Marketing or Product Strategy with the PM role then the long-range functions of Product Marketing and Strategy won’t be as effective because they’ll be under constant short-range pressure to manage the current product pipeline efficiently. Product Marketing and Strategy must maintain that long-range focus to be effective while the PM role must have a short-range focus and deliver results efficiently. Don’t mix them.

Critically, if the PM role is buried under an existing function, it also won’t be able to coordinate cross-functionally very well because it’s not truly its own independent role in the structure. Let’s say that the PM role was buried under Marketing. If so, how do you think Sales Operations, Customer Service, and Manufacturing would view the PM role? That’s right, as a biased (if not useless) marketing function not pertinent to the operational demands of today. It would be given lip-service or ignored. Everyone would be frustrated with this arrangement, especially the PM who wouldn’t seem to be executing on their charter.

Example of the PM as a Separate Function in the Organizational Structure
Again, you can get away with burying the PM role in another function when the business is in start-up mode with fewer problems. But as you make the leap to scale-up mode and add more product lines, customer types, or markets, the PM role must become its own major function in the organizational structure like this:

When scaling up, the PM role should become its own major function in the organizational structure.

When scaling up, the PM role should become its own major function in the organizational structure.

With this approach, the PM role (called the ‘PM Office’ in the image above) now has its own dedicated home in the organizational structure so that it can perform its function and fulfill its accountabilities. It translates upstream requirements from clients, sales, marketing, and strategy into clear, short-range priorities. It helps to communicate and guide the transition from prototype to manufacturing. It coordinates between sales, prototype engineering, manufacturing, and marketing so that downstream product releases are well-prepared and communicated, adopted, and impactful. And critically, Product Development, Design, Marketing, and Strategy are freed up to focus on what they do best.

Breakthrough #2: Delegate Profit & Loss Accountability to It

delegationIt’s not enough to just make the PM role a dedicated major function in the business. It should also have accountability for quarterly and annual Profit and Loss (P&L) targets for all the products and/or business units it manages. Notice in the structure above that the PM role is black in color? The term “in the black” means to be profitable and it is the PM role that should manage short-range profitability.

Why? One of the biggest challenges of leading a company into scale-up and beyond is freeing the founder/CEO from trying to do or manage too many things herself. What worked in a start up can become a bottleneck to growth and no longer work at scale. As a company gets into scale mode, the founder and CEO (as well as other members of the leadership team) need to start taking off the multiple hats they’ve been wearing so they can focus on fulfilling the individual roles they are best suited for.

It’s a common scenario. Imagine a fast-growing start up where the visionary founder plays the role of head of company and also wears that hats of head of Marketing, head of Product Strategy, head of Product Management, and head of Team and Culture. Obviously, this isn’t going to scale up and this founder will quickly find themselves overwhelmed, unable to delegate effectively, and a bottleneck to growth.

When there’s budget and availability, this founder must find talented replacements for each of these hats so they can focus on being the head of Company and wear just one or two additional hats (such as the head of Product Strategy or the head of Team and Culture). That’s plenty to take on at scale.

But if quarterly P&L accountability is not delegated to the PM role, then the founder will never fully take off the old hats. Instead, they’ll be continually sucked into making product prioritization decisions that are really in the realm and accountability of the PM role who needs the authority to do his job.

Accountability Should Be Matched with Authority

Product_Management_PM_without_authorityFew things are more ineffective and dispiriting than having accountability for something without the authority to see it through. And the PM role has a lot to see through. For instance, can you get a sense for how much conflict the PM role must continually manage? It’s a lot. Sales has its needs. Operations has its needs. So do Strategy, Marketing, Customer Service, Finance, and others. How is all of this conflict supposed to be managed without the authority to set short-range priorities?

By delegating P&L to the PM role, you are putting real teeth into its authority and allowing it to fulfill its purpose. It’s much more realistic for this role to make prioritization decisions based on the constraints of quarterly profit targets (whatever they may be), rather than just the strong opinion of Sales, Marketing, or Operations.

Again, the PM role is essential but it isn’t easy. If the team can sniff out that this position really doesn’t have the authority to make prioritization decisions, the PM role will be bypassed and the ensuing conflicts will end up right back at the feet of the founder/CEO. This is NOT how you get to scale.

And if you’re thinking of delegating P&L decisions to the head of Finance instead, you’re preventing the PM from being responsive to customer needs and fulfilling on their charter. The head of Finance needs to support the PM role with clear budgets, analysis, and advice but the actual authority to make decisions within those budgets needs to reside with the PM.

How Does the PM Manage P&L In Practice?

PM_Profit_and_Loss_ManagementSo how does the PM actually manage P&L in practice? Basically, in the budget process, the head of Company and head of Finance collaborate with the head of Sales to set annual and quarterly revenue targets and with the other functional heads to set expense budgets.

The head of Company and head of Finance then also collaborate with the head of the PM function to set profit margin targets, the pricing matrix, and discount percentages allowed for each product. The target profit margin could be anything, even 0% as in “We’re not interested in profits right now; just step on the gas and drive revenue.”

By listening to and collaborating with all the other major business functions, the PM decides on the resource allocations to be put toward the various products and features. For instance, in a software company, the PM would decide what percentage of development resources to put on different products or features in a given quarter. Note that the PM is NOT dictating which individual developers to put on different tasks. That’s the role of Product Development. Rather, the PM is deciding what percentage of total product development resources to invest this period – as in 30% to Product A, 20% to Product B, and 50% to Refactoring, etc.

As mentioned, having accountability for P&L also allows the PM to be effective in their role. When conflicts arise (and they will), then the quarterly P&L target is the ultimate arbitrator. For example, let’s say that Sales really wants a feature in the next release but it would mean bumping out some other critical features in the roadmap in order to deliver it. The PM can look at all the trade-offs and say, “Listen, this isn’t personal. Here is our profit target for this quarter and next. Based on what I’m hearing from Sales, Operations, Marketing, Strategy, and Customer Service, these are the features I’m going with and why…”

Will fierce conflicts in prioritization still arise? You bet they will. And will the PM be able to resolve all of them without help and influence from the head of Company or head of Division? Probably not. But the spirit here is really critical. If the PM can’t resolve prioritization conflicts with their peers, then that key decision will need to roll up to the next level in the organization. But at the same time, the goal of the head of Company/Division is to push accountability for short-range prioritization decisions down to the PM.

In a scenario where the PM can’t resolve prioritization conflicts by himself or herself and the decision does end up rolling to the CEO, then a good CEO won’t just step in and decide. Instead, they’ll respond with, “Hey Sales and PM, if you can’t work this out together, then I will make the call – but I warn you up front, neither one of you is going to like my decision. Penelope, as head of Product Management, you have your profit targets. Sam, as head of Sales, you have your revenue targets. I’m sure you guys can find the common ground and figure out what’s best for the overall business without me having to decide. The choice is yours…”

Breakthrough #3: Decentralize It So That It’s Close to the Customer

Is your PM function too centralized?

Is your PM function too centralized?

In a company that already has a well-defined PM role, a complaint you may be hearing around the water cooler is that the PM Office just doesn’t get it; that they’re too far removed to understand everyone’s needs and too heavy-handed with their decisions. If that’s the case, this is likely occurring because the PM role is too centralized — there’s too much riding on one person or centralized team and they can’t process through the volume of work or they are too far removed from the unique needs of a customer segment to make sound decisions.

For instance, let’s say that you are a US-based manufacturing business and have manufacturing sites in Chicago, Tokyo, and Frankfurt. Well, if you were to centralize the PM function in Chicago, then you can imagine the discord, complaints, and manufacturing breakdowns happening in Tokyo and Frankfurt, can’t you? Each site has its own sales team, manufacturing team, expertise, language, and culture. The solution is to decentralize the PM role out to each site.

If so, then decentralize the PM function into teams that are close to the customers/regions they serve.

If so, then decentralize the PM function into teams that are close to the customers/regions they serve.

Put another way, to decentralize means that if you have multiple products, factories, or semi-autonomous sites, then a PM function should be assigned to each of them. That is, you’re not trying to create a bottleneck where every decision must flow to one central person or team to make PM decisions. Instead, you’re pushing accountability down into the organization so that those closest to the customer can conduct their own product management.

Using the above example of a manufacturing company with three sites, you’d work to develop a separate PM Office at each site. And each site may have multiple product managers, depending on the company size and complexity of its products and services.

Decentralizing product management has several benefits:

  1. You’re forming semi-autonomous teams that have revenue and profit accountability.
  2. The product decisions are closest to the customers they serve.
  3. There are no centralized bottlenecks.

When you hear this suggestion, you may be thinking that having separate PM offices and/or product managers seems to require a lot of new hires or a lot of overhead. Actually, no. An approach like this is a “costless structure,” meaning that you don’t have to make any new hires to make a decentralized product management structure work. If there’s not enough scale or budget to warrant a dedicated PM at each site, then you would simply have someone wear a part-time PM hat until you can afford to hire or until you need it as a dedicated position (i.e., the difference between a start-up and a scale-up).

Breakthrough #4: Place the Right Style of Leaders to Manage It

The style, vision and values, and capabilities of the people who play a PM role in your organization also have a lot to do with its overall success. Many struggling growth organizations make the mistake of attempting to fill their PM roles with a high Producer or a high Innovator style. And if you didn’t fully appreciate the true purpose of the PM role, then it’s easy to understand why these decisions get made.

When a High Producer is a PM

gotta-nail.gifThe mistake of choosing a high Producer style to be the PM usually happens because founder/CEO is frustrated by the lack of production happening in the product development domain and erroneously believes they can solve it by putting a high Producing force in the PM role. “We need a kick-ass go-getter who will drive the teams to get things done and won’t take no for an answer. Find me a Marine!”

Clearly, every organization needs a really strong Producing force. It needs it in Sales. It needs it in Product Development. It needs it in Manufacturing and other key areas of the business. But asking the PM role to provide that high Producing force is like asking the guy who quickly changes tires in a NASCAR pit crew to take that same approach and manage the entire racing operation. One needs to produce lighting fast on incremental tasks and the other needs to think, orchestrate, prioritize, and coordinate across an entire team, race, and season.

It’s not only the rest of the organization that will feel frustrated by a high Producer style in the PM role; the PM himself will also feel great frustration. Why? Because their daily work will feel like pushing a string. A high Producer style has a lot of energy and drive to step in and get things done but, in this new role, they can’t step in and actually get things done themselves. They need to listen, ask smart questions, empathize, coordinate, think things through, understand the details, communicate, influence, etc. All of these activities are a huge energy drain to a big Producer style but can be an energy gain to a Stabilizer/Unifier style.

When a High Innovator is a PM

PM_as_mad_scientistAnother common misstep occurs when the company believes that its products aren’t creative or innovative enough and so it looks for a high Innovator style to play the PM role thinking that that will lead to more creative ideas. While it might create some new energy and excitement in the short run, it will come at a huge cost of poor coordination, communication, and prioritization and will slow down overall execution speed soon after.

Yes, you do need innovative products. But there are already probably a ton of new breakthrough product ideas residing across your organization, including from within Sales, Marketing, Customer Service, Strategy, and R&D. Ideas that keep getting suggested but don’t get implemented. It’s not a lack of creative ideas that is holding back your product. It’s a lack of assessing those innovative ideas, prioritizing them, resourcing them, and launching them.

There is another big drawback to having a highly innovative PM in a founder-led company. A talented and visionary founder is worth his or her weight in gold. They simply have an intuitive knack for understanding where the market is going, where the opportunities lie, what customers truly desire, and how to delight them. Frankly, there is no product development process that can come close to duplicating this innate sense.

But when two strong Innovating styles are forced together, this usually turns into a pissing contest over who really owns the vision. Meaning that, if there’s a high Innovating force in the PM role and a high Innovating force in the founder/CEO role, then the conflict over who owns the vision and sets the priorities will get severe. Soon, the PM will be forced out or the fonder/CEO will quit in frustration.

You want your PM to have enough Innovating force to get and appreciate breakthrough ideas coming from elsewhere in the organization. He or she especially needs to be able to translate the innovative ideas coming from the founder/CEO but also needs the strength and credibility to remain neutral and push back on their dumb ideas. They should be able to steward the product vision but not have a need to control the product vision.

The Desired Attributes of a Great PM

There are other capabilities and attributes to look for in a strong PM besides the natural ability to Stabilize and Unify. Some of the qualities I’ve seen that work best include:

  • They are in the #1 Team Leader quadrant, meaning they not only have the skills and pSiU style; they also share the desired vision and values and aren’t mercenary.
  • They have a deep technical understanding of the product. This allows them to be credible with Engineering, Marketing, Sales, Strategy, and R&D. They understand the details but without getting lost in the details.
  • They command and grant mutual trust and mutual respect. A successful Product Manager doesn’t have to say a lot to get a lot done. They emanate a sense of respect for themselves and they give and receive respect with others.
  • They don’t make things personal. There’s no politics, innuendo, or personal toxicity following them around like the cloud from Linus’ blanket.
  • They keep the mission forefront in their decisions. They make decisions based on what’s right for the company, not what’s seen as best for an individual or department.
  • They add energy to the group. They make the work fun, stay positive, and are generally additive to a group or situation. They reduce entropy; they don’t create more entropy.

In short, I want you to recognize that the PM role isn’t a junior role. It’s a key senior role on your leadership team. So put resources and investment into finding and filling it with the right leader, with the right structure and accountabilities, and then support it with the right processes, metrics, and tools.

Breakthrough #5: Equip It With Sound Processes, Metrics, and Tools

PM_with_wrong_tools_for_jobThere’s a booming industry of software-as-a-service (SAAS) companies that would like you to believe that if you just subscribe to their leading communication/groupware/collaboration/execution platform then your business will somehow be magically transformed. Good luck with that.

Purchasing or deploying a new tool or platform without first making the PM role a core and distinct organizational function, assigning quarterly and annual P&L accountability to it, and staffing it with the right people, would be the equivalent of applying a fresh coat of paint to a badly designed house. Sure, it might look fresh for a month or two but the house is still falling apart and it’s still hard to live in it.

Instead, put most of your energy and attention into rethinking and redesigning the PM function (as well as your overall strategy and execution framework) and then you can help to equip the PM with the right processes and tools to be effective. More specifically, strive to keep the processes and tools simple. You don’t scale through complexity; you scale through simplicity.

Regarding process, the PM function’s major process to manage is to define and communicate the short-range product roadmap/prioritization. The best practice I’ve seen here is for the PM to host an open product roadmap meeting once or twice a month. This means that whoever wants to influence the product roadmap can show up to that meeting and make their case. If someone doesn’t want to influence the product roadmap, then they don’t need to show up to that meeting. And if they miss that meeting, then they shouldn’t be allowed to jump in and sway those short-range prioritization decisions on the next release cycle.

The benefit of this approach is that it allows for frequent enough influence into product prioritization decisions but also enough autonomy for the Product Development team to produce actual products/features. Product prioritization decisions shouldn’t be left to the daily or weekly whim. They need some stability and focus. It also allows the PM to have some sanity because they’re not being whipped this way and that way every day trying to accommodate an ever-changing array of feature requests.

This suggested timing is just a guideline. If you are in a setting that requires more frequent adjustments to priorities, then you may have to have that prioritization meeting every week. If not, have it every quarter. Use your best judgement.

The PM must also make communicating the short-range product roadmap cycle a regular priority. This can be done however makes the most sense for your company, including via meeting, email, groupware, or even a dedicated product roadmap tool like ProductPlan provides (shout out to my fellow local Santa Barbarian Jim Semick!)

For metrics, also keep it simple. You don’t have to invest in a million-dollar ERP system just to figure out the exact profit margin to-the-penny of your various products. Start where you are. Guesstimates are good enough to begin. The spirit is for accountability on prioritization decisions to reside with the PM role and for it to have enough teeth behind its decisions to follow through and execute quickly.

As the business develops, the PM can gain additional leverage and insight by tracking key performance indicators (KPIs) like:

  • Profit margin by product
  • Development time and cost by product (i.e. resource allocation)
  • Customer satisfaction by product
  • Sales by product

The bottom line when it comes to processes, metrics, and tools is that a strong PM will likely already know what processes and tools they want to deploy and what metrics they need to track. If they try to go overboard, encourage him or her to keep it simple. Focus on having a regular and open product prioritization meeting as well as the regular communication of the short-range product roadmap and to pay attention to the metrics that really matter. That’s it.

One more thing: I would encourage Product Marketing to maintain its own product release calendar so that it can coordinate and execute on training, PR, education, campaigns, and all other aspects of product marketing. And that Product Development maintains its own development or sprint calendar too. Like an air traffic controller, the PM role needs to make sure the planes are doing what they’re supposed to be doing and that traffic is well coordinated, but they don’t actually fly the planes.

Also make sure to keep the product prioritization meetings SEPARATE from your regular cross-functional leadership team meetings. The product prioritization meetings are about working in the business. The cross-functional leadership team meetings are about working on the business. If you co-join these into one meeting, then you’ll spend almost all of your time deciding product prioritization and you won’t have the time energy, and focus to work on developing the rest of the business. Keep them separate.

Now that we’ve defined the terms of product management, talked through the basic scaling tactics, and answered the most pressing questions, let me share a case study with you that should help to bring it all together. This case study is based on one of my coaching client companies and I’ve changed the names to protect any proprietary information.

Case Study

Three years ago, Acme Co. was struggling to break through from Nail It to Scale It. This eight-year-old company had about $6M in annual sales but its growth had been stagnant for the past several years and it was losing money. Its main product offering was providing benefits administration services to large employers. If you can picture 10,000 employees at Honda logging into a web portal to track and update their benefits, then you have an idea of their basic business model. Acme had invested heavily in its technology platform so that it could provide personalized information and benefits education to thousands of employees at scale.

The CEO of Acme, Max Payne, is a very smart, driven visionary. He didn’t set out to be in the large employer benefits administration business but found himself there because, after several early pivots, that’s where the market demand was, albeit with increasing competition and deteriorating margins.

For the past several years, Max was anticipating that the adoption of the Health Care Affordability Act by the US Government would unleash huge market demand from large employers and insurers to track quality of care (He was right). His vision was to transform Acme into a Quality of Care and Benefits provider – one with higher margins and faster growth potential, and a lot more exciting to manage than a low-growth, low-margin, pure benefits administrator. The challenge was that the company seemed to keep tripping over its own two feet during execution.

From his own assessment at the time, Acme seemed to be struggling most with:

  • A compelling and exciting vision but poor execution
  • Difficulty in managing the competing needs between the existing benefits business and the new quality of care initiative
  • Too many dropped balls between signing on and onboarding new clients
  • Inefficient manual processes that never seemed to get fixed
  • Everyone not on the same page in understanding priorities and resource allocation
  • Product development taking too long on the next-generation portal
  • Max spent too much time managing internally vs. being external, meeting with new clients and partners to sell the vision, win early accounts, and build momentum for the new model, which he was very well suited to do
  • A lack of capital, time, and energy to do everything at once.

At the time, Acme had an organizational structure that functioned something like this:

  • Product Management didn’t really exist. It was “sort of managed” by the head of Software Engineering, head of Marketing, scrum master, and Max. A common problem was that new features for the next-generation portal would get built but were usually a surprise to everyone outside of product development and weren’t communicated well to clients or to support staff.
  • Product Marketing was weak. It was managed by the head of sales who also oversaw marketing. The company knew this wasn’t ideal but didn’t have the budget yet to have a full-time head of marketing.
  • Product Strategy was very strong. Max had and maintained a very clear vision of what the product could do and was very skilled at communicating that vision to the entire ecosystem.
  • Product Design and Development was heroic. What do I mean by heroic? They were perpetually understaffed but had a small, committed, and talented software engineering team who kept building really great technical products.
  • Other major functions like Sales, Customer Support, Channel Management, Tech Ops, Finance, Accounting, and Admin did exist and were being managed well, but with the usual challenges of a growing business.

Our solution (after putting in place a sound strategy and execution framework using the Strategic Execution Coaching Program) was to break out Product Management as its own major function as a PM Office that would manage both external products and internal projects like this:

New approach Product Management in Structure - Rethinking Product Management (1)

After adopting this new structure at first, the company didn’t have a dedicated leader to head up its newly formed PM Office. Instead, a temporary hat was worn by the head of Tech Ops who did his best to manage the PM Office in the short run while the head of Software Engineering owned Product Development and Design, the head of Sales continued to wear the hat of head of Marketing and oversaw Product Marketing, and Max continued to wear the hat of Product Strategy, which he continues to wear to this day.

Over the next three to four months the company hired a dedicated person to be the full-time PM as well as a dedicated head of Marketing. Note how much easier it is to hire into a clear structure with well-defined roles. Even if your business doesn’t have a budget to make new hires, you should still create the right structure and assign temporary hats to current staff and then hire into those roles as you can afford to do so.

In this new structure, the accountabilities of the PM Office were to translate requirements from sales, strategy, marketing, and operations; prioritize the short to mid-range Product Development roadmap and resource allocation; and coordinate with Product Marketing on new product and new feature releases so that both internal staff and external customers and prospects are aware, educated, and trained to get the most of those features and benefits.

So what were the results of this new structure? Breaking the PM Office out as its own major function in the business has some profound benefits. In this case:

  • The company has grown from $6M to $30M in sales in just two years (i.e. their timing was right thanks to Max’s high Innovating style and it is actually executing on its strategy thanks to the new PM role).
  • Its net operating margin has improved from approximately 12% to over 50%.
  • Max spends significantly less time managing the business and almost no time managing the product pipeline (other than contributing his desired priorities from Product Strategy).
  • The business is an emerging leader in the new exciting growth field.
  • The company just completed a new financing round at a significantly higher valuation.
  • Intra-departmental communication and coordination has improved tremendously.
  • The distinct accountabilities between Product Management, Strategy, Design, Development and Marketing are clear and managed by different leaders who are each a strong fit for their roles.

Now, just as I was attributing a lot of internal corporate breakdowns to one role — Product Management — I’m also now attributing a lot of internal breakthroughs, including increasing sales, improving product margins, better communication and coordination to that same role. Is this all really due to breaking out the PM Office as its own major function? Yes and no.

Yes, because Product Management was conspicuous by its absence. That is, if the organization is in scale-up mode and it is a complicated task to manage multiple product lines, customers, markets, or conflicting priorities, then the absence of Product Management will cause the business to bog down in its execution.

No, because Product Management does not operate in isolation. Every successful business must also have the basic foundation in place to scale. This includes a strong cultural system, a clear strategy, good cross-functional decision-making processes, great communication, a sound organizational structure, talented people who fit the culture, and effective targets and KPIs. In this case, Max did a great job of making sure that all the foundational pieces were alive within Acme and then by adding Product Management as its own major function into the mix, it could really scale up quickly.

Summary

Having coached over 50 multimillion-dollar companies from the Nail It to the Scale It stage, I’ve seen firsthand how Product Management can make or break your efforts to scale. In this critical stage transition, redesigning Product Management is essential.

Product Management is a distinct function from Product Strategy, Product Design, Product Development, and Product Marketing. If your business is making the leap from start-up to scale-up, then in order to be successful, you should make the PM role its own major function, delegate P&L accountability to it, staff it with the right leaders and team, and equip it with sound processes, metrics, and tools. Avoid Product Management bottlenecks by decentralizing the PM function to the teams closest to the customer. Finally, having a strong PM function does not mean you can skip the other elements of running a sound business – culture, strategy, structure, process, people, etc. The PM role is a catalyst that helps to bring all of those other aspects together for quick execution but it can’t itself overcome a misaligned structure or environment.

I hope you find this article helpful and that it gives you some things to think about as you work to create breakthroughs in your own organization.

By |2015-10-15T19:47:33-07:00October 15th, 2015|Articles|Comments Off on Rethinking Product Management: How to Get from Start-up to Scale-up

Organizational Design: Why You Should Not Have a President and COO

Photo credit: AudienceView.

Photo credit: AudienceView.

It’s a classic tale. Your company’s driven, visionary founder manages to lead your start up to takeoff and hit rapid growth mode. But then something happens, and everything starts to bog down. Those former start up struggles and early wins turn into a whole new set of challenges: running the business at scale.

At about this time in an organization’s lifecycle, conversations in the board room and around the water cooler start to focus on the founder. See if you’ve said or heard any of these before:

  • Our founder has great energy and ideas (along with some really dumb ideas) but we still can’t seem to get our act together.
  • It’s no secret our founder isn’t an Operations person.
  • We need to either replace our founder or support her with someone experienced who can run day-to-day operations and keep the trains on time.
  • What we need is a President/COO. Then the founder/CEO can be Mr. Outside and the President/COO can be Mr. Inside.

Does any of that sound familiar? I bet it does. On the surface, having a President/COO can make a lot of sense. Every organization needs stability, structure, and experience if it is going to scale up. The approach is certainly popular. “President and COO” titles are so common—throw a stapler in the air at your local office park and you’re bound to hit one on the head.

But hiring a President/COO to solve the “founder” problem typically brings just a new set of problems, setbacks, and even disasters. In many cases I’ve seen, the new President/COO was a sure bet on paper but failed to replicate past successes in a new environment.

In another common scenario, you’ll find that soon after joining, the new President/COO will get into conflict with the founder/CEO about who really runs the business. When this happens, the culture quickly erodes into “old guard” vs. “new guard” and execution speed bogs down across the board from all the in-fighting and politics.

There’s also a little appreciated but equally severe problem that happens when the founder leaves the business too soon, now that “the professionals are in charge” or because “it’s just not that much fun around here anymore,” and the company fails to capitalize on its true potential over time.

While hiring and integrating capable senior leaders into the organization is needed and necessary to scale your business (I’ll show you how to do this here), the popular approach of having a President/COO to oversee business execution usually turns out to be a fix that is much worse than the original problem.

I’ve coached many founder-led, high-growth companies to increasing revenues and profits without a traditional President/COO and without mistakenly consolidating business functions together. I can say with confidence that there is a better way to build great leadership to help an organization scale, without the drawbacks of the popular approaches.

The answer lies in understanding the Leadership Team model. With a strong functional Leadership Team, you avoid the typical problems of the President and COO approach in favor of a distributed, transparent Leadership Team process. Done well, it’s the difference between a monarchy embroiled in power and succession battles and a functional representative democracy. I’ve seen it work over and over again. And it all starts with how you think about what’s really needed to scale your business.

Start With Your Strategy and Structure

Aristotle once said, “If you’re going to debate me, first define your terms.” Many of the issues surrounding the President/COO role start with a lack of clarity about what that title really means.

Think about it. When an individual has the title of “President” or “COO” or “President and COO” what does that really mean anyway? Are they in charge of operations? Sales? Engineering? Product Management? Tech Ops? Administration? Marketing? All internal functions? Some internal functions? The titles and role responsibilities might mean one thing in one company and something totally different in another.

To help answer that question, you need to know your business strategy and have an organizational design that supports that strategy. Below is a simple organizational design that supports an expansion-stage strategy for a Software as a Service (SAAS) company with one business unit. (Note that every structure is unique. Consider this structure an example for discussion, not a direct representation of your business.)

Organizational Design- Why You Should Not have a President and COO Basic Organizational Structure

I’ve designed this sample structure using the 5 Laws of Organizational Structure. (If you’re unfamiliar with these laws, you may want to understand them before proceeding.)

Remember that the goal of a well-designed organizational structure is to call out the major business functions; place them in their correct relative location in the structure by balancing the need for autonomy and control, effectiveness and efficiency, short-range and long-range needs; and ultimately clarify who is accountable for each function.

Note that there may be 1 or 1,000+ employees in a given function. That’s fine. But who’s ultimately accountable for the performance of that domain? That’s what we need to get to in the structure. Clarifying accountabilities in the structure does not mean you need to rush out and hire someone to fill each role immediately. Depending on the lifecycle stage and budget of your company, one person could play a role and wear multiple hats across different functions in the structure.

Notice too that I’m not using titles in the structure but functional descriptions for each role? For instance, rather than the title of CEO at the top of the structure, I’m calling out the function this role performs as “Strategic Execution,” or the role accountable for defining the strategy and tying it to execution. Similarly, I’m not using a title like “VP of Sales,” but just a simple functional description of “Sales” meaning the role accountable for driving revenues from new and existing clients.

The reason why you shouldn’t use titles in your structure is that titles create confusion where you need clarity. They protect or project egos, create role confusion, and obfuscate the real and necessary discussion about what functions are needed to scale the business and the style you need in each role.

If you ever find yourself discussing what titles you need versus what functions your business must perform, read Organizational Design: The Difference Between an Organizational Structure and an Org Chart to get out of that trap.

Now that we have a basic structural map to work with, we can reframe the discussion with great clarity around what it would really mean to have a President/COO, the implications of different moves, and ultimately how to be smart about the decision.

So back to the issue at hand… when someone in your company says, “We need a President/COO,” you should immediately ask, “OK, and what functions will that individual be accountable for? Head of Sales? Head of Operations? Head of Sales and Operations? Overseeing all other business functions? To replace the founder/CEO as head of Strategic Execution? What functions do you think we need to fill and why?”

If you can answer that question for your own business, then you’ve won 50% of the battle and it puts you significantly further ahead of most companies that are just blindly looking for a title. The other 50% is avoiding the two most common mistakes made when attempting to hire/promote the equivalent of a President/COO in your business:

  • Mistake #1: Turning the founder/CEO into the Queen of England
  • Mistake #2: Collapsing Distinct Functions

Here’s what both mistakes mean and why it can be so costly to organizational performance…

Mistake #1: Turning the founder/CEO into the Queen of England

Organizational Design- Why You Should Not Have a President and COO- Queen of England (2)

The mistake of turning the founder/CEO into “The Queen of England” occurs when the founder/CEO attempts to have one individual manage all internal activities so that he or she can be “freed” to focus on external activities like fundraising, market evangelizing, or playing golf. The founder/CEO maintains the CEO title in name only, but gives up trying to manage the business.

I call this particular move the Queen of England because the founder/CEO, even if they’re not originally intending this, ends up with all title and no power. What you’ll usually see happen in this case (there’s one exception — the Chief of Staff — that I’ll explain below) is that the founder/CEO and the new President/COO soon get into a toxic conflict over who actually controls what.

Once this internal battle ignites, the culture quickly segments into the “old guard” and the “new guard.” Execution speed slows down from all the infighting and internal politics. Navigating this situation sucks everyone’s time and energy. When this classic battle unfolds, either the founder/CEO stays (if they still have control) or the President/COO gets fired and the company is right back where it started — but now even further behind in its development.

Even if this battle for control isn’t overt, with the Queen of England structure in play, you’ll often find that the founder/CEO has disengaged from the business and made a quiet surrender.

This early exit happens because the founder/CEO is burned out from all the heavy lifting they’ve had to do to get the business this far and they crave a break. They typically feel dissatisfied because the business no longer seems capable of executing on their endless thought-stream of breakthrough ideas (the company is overwhelmed just trying to manage existing operations). Alternatively, the founder/CEO just doesn’t know what to do in this new “professional” setting and feels like a fish out of water. Things have gotten tiresome, overwhelming, or plain boring, so they crave a new setting, ideally with some money in the bank.

It is rarely a good thing when the innovative founder, who seems to have a sixth sense for what the industry really desires, disengages from the business too soon. And don’t fall for the popular myth that a talented founder is unnecessary to scale a great business.

Just look at every transcendent brand — those multi-generational businesses that disrupt and dominate entire industries. Each one had one or more founders who did not run a Queen of England structure (many tried it before reverting to the Leadership Team model that I’ll explain below). Nor did they get kicked out by VCs or put out to pasture by the Board into a Chairman or VP of Strategy role. Instead, these legendary founders got carried out on a stretcher after a lifetime of business building doing only what they could do.

You may be thinking, “Well shit, how many Steve Jobs, Jeff Bezos, or John Mackeys are there in the world? Those guys are born geniuses. Our founder is very far from their capabilities so who really cares if he disengages? In fact, we’d all like a break from his mood swings and barrage of crazy ideas. Truth be told, our founder is a pain in the arse.”

The fact is that genius founders aren’t born; they are made. We’re all shaped by the environments we inhabit. A large factor in what makes Jeff Bezos Jeff Bezos is that he sits at the head of Amazon every day. You’ll find the same thing is true with most great founders: They were born with raw capabilities, and that latent potential quickly became actualized in the crucible of leading a world-changing company.

In all but rare exceptions — such as when the founder is truly an immature idiot or a crook — don’t try to put them out to pasture. You can’t buy or duplicate what a talented founder as the head of Strategic Execution can bring to the table in terms of vision, heart, commitment, and innovation.

Instead, design the business around their individual genius — what they are uniquely capable of doing and energized by — while also designing the business to scale and coaching him or her to be an effective head of Strategic Execution.

By the way, the Queen of England structure isn’t just a stupid move for your mid-sized growth business. Of the world’s top 10 companies by market cap — Apple, Exxon, Microsoft, Google, Berkshire Hathaway, Johnson & Johnson, Wells Fargo, Walmart, GE, and Proctor & Gamble — can you guess how many have adopted a centralized structure where all reports roll to a President/COO who in turn reports to a CEO? Zero. (Note: you will see some of these organizations using the title “President and CEO” to indicate that one person is head of Strategic Execution for the business or for an entire business unit but they don’t have one direct report; they have a team of direct reports).

Finally, if the founder/CEO is really committed to stepping out of the day-to-day business, then he or she should call it like it is, give up the CEO title, and just sit on the board of directors. Problem solved.

Mistake #2: Collapsing Distinct Functions

Organizational Design- Why You Should Not Have a President and COO- Bad Consolidation

Some companies intuitively grasp that the Queen of England structure is flawed but they still make the mistake of attempting to consolidate different core business functions together. The basic idea is to limit the number of direct reports that founder/CEO has to manage and to bring needed expertise to what may seem like — on the surface — similar business functions.

For instance, in the example structure above, this business has consolidated the external functions of Sales and Marketing under a President; the internal functions of Product Management, Operations, and Software (SW) Engineering under a COO; and Strategy and Admin under a CFO. You’ll see this or some variation of this consolidated structure in many different businesses (most of them not breaking through).

On the surface, consolidating like this might seem to make sense. But once you know what to look for, you’ll spot a lot of problems in this approach. Problems that will cause the business to miss new innovation opportunities, have more hierarchy than what’s needed, consolidate too much power in one person, and/or fail to scale to its potential. Here are some of the most glaring problems with consolidating:

  • Marketing Should Not Be Consolidated with or under a Sales Function (President or Chief Revenue Officer)
    Marketing is a long-range function. Sales is a short-range function. Unless you design against it, the short-range will always overpower the long-range. In this case, if you were to consolidate Sales and Marketing together under a President or Chief Revenue Officer, then Marketing would soon turn into a sales support function and lose its long-range effectiveness, which is needed to build and defend the brand architecture and positioning, craft a compelling brand narrative, and adapt the brand early to changing market conditions. In short, to do real marketing.

    This is true even if you have what appears to be one rock-star President in charge of Sales and Marketing now. Either that leader truly excels at Sales or they excel at Marketing, but usually not both and definitely not both at the same time. Put another way, if you have one leader wearing both the head of Sales hat and the head of Marketing hat, then one or both of those functions are going to perform at a less than optimal level.

    You may be asking, “Wait, doesn’t Marketing need to support Sales?” Absolutely. Every function has a client. But Marketing has many clients in addition to Sales, including Strategy, Product Management, Operations, and Strategic Execution. It must maintain its long-range orientation while simultaneously supporting short-range needs. Don’t consolidate Marketing with Sales or it will fail your brand over time.

    This is different than having a President or even a President and CEO in charge of total performance of a distinct business unit. Even in this case, however, you’d still want to centralize the overall brand architecture under corporate Marketing and then delegate Marketing Execution to that business unit, but still within a sound structure where Marketing Execution is distinct from Sales.

    You may also be thinking, “Geez, we can’t afford to go out and hire a new head of Sales or a new head of Marketing. Does this guy Lex think we’re made of money?”

    My answer to that is you have to play the cards in your hand. But calling out Sales and Marketing as distinct functions and placing them in their correct relative locations in the structure is incredibly valuable — even if you’re going to have one leader wear both hats for now. Doing so allows you to spot where potential improvement areas lie, find quick wins, and to judge the current leader by their primary role and expertise. Ultimately, it also allows you to find the right new candidate when you can afford to do so.

  • Product Management Should Not Be Consolidated with or under an Operations Function (COO)
    Product Management is a translation function. That is, it is designed to translate between the need to support the effectiveness of outbound activities and the need for efficiency in internal ones. If you consolidate Product Management under Operations, it will become very efficient but less effective. It will cease being as responsive to the needs of Sales, Marketing, and Strategy.

    For a different reason, it’s also a mistake to consolidate Product Management under the President in charge of Sales. Sales should be held accountable for revenue but Product Management should be held accountable for the profit of the products that Sales sells. One function, Sales, needs to be very effective at driving revenue. The other, Product Management, needs to be very efficient at coordinating upstream and downstream requirements and product releases and allocating production resources to be profitable.

    In addition, if you did roll Product Management under the President in charge of revenue, then your profit margin will quickly deteriorate under pressure to hit revenue targets. The founder/CEO as head of Strategic Execution will end up needlessly caught in the mix of negotiating sales contracts or pricing models. Product Management needs to balance short-range profit targets with long-range product development needs, not fall prey to the singular pressure of Sales or Operations.

  • Software Engineering Should Not Be Consolidated with or under Operations (COO)
    Software Engineering needs to maintain its effectiveness and adaptability and will lose it if it’s consolidated under Operations. Software Engineering (otherwise called Product Development or Manufacturing in a non-software company) must be innovative and responsive to changing product requirements, right? Well, if you put it under the COO, who by design needs to make operations controllable, repeatable, and efficient, it will lose its flexibility and adaptability to change.

    For a similar reason, you would not consolidate Technical Operations (IT, Tools and Systems Integration, Data Analytics and Reporting Platform, etc.) under Software Engineering or vice versa. If you do, what you’ll find is that your internal technical operations will always play second fiddle to external customer requirements. You’ll lose out on your ability to operate efficiently at scale.

  • Admin and Strategy Should Not Be Consolidated Together, Nor Should They Be with or under Strategic Finance (CFO)

    The CFO or head of Strategic Finance is a long-range effectiveness function. It must deploy surplus cash for a sound return, provide strategic-level insight to all other business functions and the board, and ensure that the organization is compliant with regulations and there is a sound global governance process in place.

    Many companies consolidate their Administrative functions like controller, HR administration, and corporate legal coordination under the CFO. However, these administrative functions are all about short-range efficiency. A great CFO is not a great Administrator and vice versa. If you ask one leader to oversee both functions, the organization will have either poor strategic finance or poor administration (not to mention the structural risk of having one function both collect the cash and pay the bills).

    Finally, it’s a mistake to have the CFO as head of Strategic Finance also oversee corporate Strategy. While both functions are about long-range effectiveness, you want your Strategic Finance function to act as a check and balance against spending too much money or doing really dumb things. If you were to consolidate Strategic Finance and Strategy, then you’d lose that check and balance or you’d miss out on really bold strategic moves. You want constructive tension between these roles, not consolidation.

    There is another reason not to consolidate Strategy under the CFO. Strategy (priorities, incubating new initiatives, recruiting, culture, etc.) needs to be directly involved with the Strategic Execution function at the top. Strategic Execution is the head of the company and the biggest mistake this role can make is to misread the changing market environment. Strategy needs to directly support Strategic Execution and incubate the next generation of innovations. For this reason, the head of Strategic Execution can and should delegate accountability for all business functions except Strategy.

There are a lot of other poor consolidation choices that a business can make. The main thing I want you to take away is that how something is designed is how it behaves. Your business has many different functions. The design must make sense for the strategy and it must balance autonomy and control, short range and long range, effectiveness and efficiency. Rather than attempting to consolidate conflicting functions for “ease of management,” treat them as distinct functions that warrant their own space, focus, and accountabilities in the organizational hierarchy.

If placing a Queen of England or consolidating the wrong functions together causes problems for sustained business performance, as we have seen, then what is the right way to get the benefits of having the equivalent of a President and COO?

There are two smart and straightforward moves to make:

  1. Smart Move #1: Hire/Promote Strong Functional Heads to Be On the Leadership Team
  2. Smart Move #2: Optionally Add a Chief of Staff

Smart Move #1: Hire/Promote Strong Functional Heads to Be On the Leadership Team

Organizational Design- Why You Should Not Have a President and COO Basic Organizational Structure with Leadership Team

The structure above is both simple and smart. Rather than trying to turn the head of Strategic Execution into the Queen of England or to consolidate different major functions under a few individuals, hire or promote a team of leaders who each “own” one of the major functions. Together with the head of Strategic Execution (the founder/CEO), these leaders make up the Leadership Team.

This approach should make sense intuitively. In order to scale a business, you don’t just need one or two leaders; you need a team. Even if you can’t yet afford to have a senior team of 5 to 10 people, this is still a superior approach to scaling your business. Why? If you were to seek out a potential President or COO, they would still need a strong team of leaders under them.

Second, even if you have a small team that must wear multiple hats until the business is big enough to afford dedicated roles, as I mentioned earlier, it is still better to call out that your head of Sales is temporarily wearing the hat as head of Marketing (or your head of Software Engineering must help out in the short run as head of Operations), rather than giving your head of Sales the title of “President” in charge of Sales and Marketing – and dealing with all the trouble of undoing that consolidation later.

In a nutshell, this approach of having a Leadership Team requires that you first define your growth strategy and culture, then design the organizational structure based on the major business functions (not people or titles), and then find leaders who are a strong match for those functions, independently of job title.

Now, I can almost hear some of you thinking, “Wait a minute, there’s no way that our founder/CEO can manage a team of 5 to 10 direct reports. If we don’t consolidate some of these functions, it will be just too much for our founder to handle.” If so, I call bullshit.

The truth is that, with a basic cultural system in place, an effective team-based decision-making process, information transparency with clear metrics, and a sound talent management process, it’s not hard to manage that many direct reports. In fact, almost any founder can quickly learn to manage a team of 5 to 10 direct reports very effectively in about 1/2 day per week.

Here’s another way to think about managing direct reports in this or any structure. The Strategic Execution role (whatever the title may be: CEO, President and CEO, GM, Owner, etc.) needs to be strong at deciding what to do and why. His or her direct reports — the leadership team running the other major functions — needs to be capable of determining the how and when to execute on the plan.

So don’t add unnecessary layers at the top of your business. In order to execute swiftly, the Strategic Execution role needs a direct representative from every major function at the table. With the right strategic execution framework, it’s straightforward for the head of your business to manage a handful of talented direct reports who are also a strong match for their roles.

Smart Move #2: Optionally Have a Chief of Staff

Organizational Design- Why You Should Not Have a President and COO Basic Organizational Structure with Leadership Team and Chief of Staff

If you still feel that the founder/CEO can’t manage that many direct reports, or if the business is just big and complicated, then a modified version is to add a Chief of Staff on the Leadership Team of functional heads. The sole purpose of the Chief of Staff is to support the head of Strategic Execution (founder/CEO).

Adding a Chief of Staff allows you to maintain the strong Leadership Team structure while also providing Strategic Execution with more administrative/obstacle-removing/project management expertise. You might think of how the Chief of Staff supports the Strategic Execution position of the President of the United States.

Unlike the Queen of England, it’s clear in this structure that the Chief of Staff is there to support, not interfere or compete with, the head of Strategic Execution. There’s just one ultimate boss and no role confusion about who is really in charge. “The buck stops here,” as Harry Truman was fond of saying.

There are other benefits of this approach too. The head of Strategic Execution still maintains direct connection with the Leadership Team of functional heads who execute on the strategy. The approach doesn’t consolidate too much power and control under one individual and it supports sound organizational design principles by balancing the conflicting needs of autonomy and control, effectiveness and efficiency, long range and short range. It also allows the head of Strategic Execution to train up the next new head of a strategic business unit as Jeff Bezos has done successfully at Amazon…

Take a Peek Inside Amazon

Jeff_Bezos_The_Everything_Store The Leadership Team with a Chief of Staff is the basic approach that Jeff Bezos has put in place, after some significant missteps, for the organizational structure at Amazon. According to the fantastic inside history of Amazon by Brad Stone, The Everything Store: Jeff Bezos and the Age of Amazon, in the early 2000s when Amazon was struggling to get its operational house in order, Bezos and the Amazon Board aggressively pursued and hired an experienced President/COO named Joe Galli, a former Black & Decker executive. Their vision was that Galli would “bring some adult supervision” and complement the erratic and visionary Bezos by giving focus and stability to Amazon’s execution.

In short, Bezos put in place a classic Queen of England structure whereby all Amazon executives reported to Galli. You can guess what happened. At first Bezos took some time off to be with his newborn son. But via email and irregular meetings, Bezos and Galli soon engaged in a classic battle over who really ran Amazon. The executive team culture turned toxic, business execution speed bogged down, and there was an exodus of key leaders and staff.

13 months later, Galli was forced out by Bezos, who still owned a majority stake. From there Bezos shifted towards a leadership team model with key executives owning different business functions as well as new innovation opportunities in Strategy. A few years after that, Bezos also put in place a Chief of Staff role that would be occupied by key up-and-coming leaders with great potential who would shadow him nearly every day for 18 months.

During the shadow period, the Chief of Staff (now formerly called the Technical Advisor) helps Bezos coordinate and execute on Amazon’s multi-pronged strategy. This close collaboration allows the pair to build chemistry and trust. It also allows the Chief of Staff to be inoculated in the Bezos mindset and philosophy and build up leadership skills and cross-functional visibility. The internal parlance for the Chief of Staff and other key leaders who’ve worked closed with Bezos is “Jeff Bots,” meaning they’ve bought into the culture, vision, and methodology at Amazon to such an extent that they are like little Bezos multiplied across the culture.

Once the Chief of Staff’s 18 month tour is over, the goal is to have him or her head up a new key strategic initiative at Amazon. One example of this is Andy Jassy, who went from Chief of Staff (and other roles at Amazon) to ultimately heading up the early version of Amazon Web Services (AWS), Amazon’s hugely transformative and market-dominant cloud services architecture.

Summary

Looking to hire or promote a President/COO – or multi-person equivalents – is rife with problems. Whatever you choose to do, you must avoid both the Queen of England strategy and short-sighted consolidation of different business functions. A better bet is to hire or promote highly competent, dedicated leaders for each business function and to align the strategy, culture, structure, and team-based decision making processes so that the head of Strategic Execution can drive the business forward (possibly backed by a Chief of Staff). If you take this basic approach, you’ll save yourself a lot of time and energy, avoid missed market opportunities, and give yourself the greatest probability of success.

By |2020-03-25T10:55:55-07:00February 18th, 2015|Articles|Comments Off on Organizational Design: Why You Should Not Have a President and COO

Organizational Design: The Difference Between Organizational Structure and an Org Chart

“What’s the difference between an organizational structure and an organizational chart? Do you need one or the other—or both—to manage your business?” I get asked different versions of this question a lot. The distinctions are subtle but important. Knowing the answers—and approaching your organizational design the right way—is mission-critical to scaling your business.

The short answer is this. In most cases, if you’re entering a new stage for your business—scaling beyond start-up mode or embarking on a new growth strategy—you’ll need a new organizational design. And when it comes to organizational design, you really only need two things:

  1. A well-designed organizational structure
  2. A “role-centric” human resource management system (HRMS) that mirrors the structure

That’s it. You do not need a classic org chart—that constantly-changing and almost instantly-out-of-date diagram that shows names, job titles, and lines of reporting responsibilities. The org chart tends to quickly become obsolete and leads to a counterproductive focus on who’s where in the organizational pecking order…

You don't want this.

You don’t need this. Photo credit Pathfinder.

Trying to maintain a classic org chart—or, heaven-forbid, to redesign your business based on one—causes much more harm than good. So drop the classic org chart and instead embrace the principles of effective organizational structure combined with a role-centric HRMS. Here’s what you need to know…

Are You Attempting to Redesign Your Business from an Org Chart?

It should be intuitive that, in order to manage and scale your business, you need a sound organizational design. As I’ve written in “The 5 Classic Mistakes in Organizational Structure: Or, How to Design Your Organization the Right Way,” everything has a design to it. If your business design sucks, then your execution will too.

Changing an organizational structure can be very challenging because there’s a lot of inertia tied up in the status quo. Individual perceptions of job status, internal politics, titles, compensation, and desired career paths can make changing your structure seem complicated, if not daunting. Many companies set themselves up for failure by attempting to redesign the organization from an existing org chart. When this happens, it sounds something like this…

“OK, so what if we have Sally and Mike report to Jeff, Jeff report to Ron and Ron and Helen will split reporting responsibilities? That could work. Wait.. what… Helen is leaving now? Damn. OK, how about if instead Peter takes over for Ron and Ron can head up the new product line? No, that won’t work because Ron’s ego is as big as the Grand Canyon and he’ll feel like he’s taking a step backward. Shit. This is complicated. I guess we’ll just stick with the status quo, even though we all know it’s not working well at all.”

If you ever find yourself in a conversation like this one, it’s a sure sign that you’re not thinking deeply enough about your business. You’re stuck in the past when you should actually be leaning into the future. You’ll end up making cosmetic, surface-level changes—or no changes at all—when what’s really required is deep thinking—that is, thinking deep into the structure of your organization to execute on an evolving strategy for an evolving market.

Having personally restructured over 50 companies and seen them transform into lean, mean, growing machines, I want you to know that while it is challenging, restructuring is absolutely necessary if the organization is transitioning into a new lifecycle stage and/or changing its strategy. But redesigning a business doesn’t start with the org chart. It starts with creating the new organizational structure.

The Key Differences Between an Organizational Structure and an Org Chart

An organizational structure and an org chart can often appear similar on the surface, but there are some profound distinctions:

  • Organizational structure is designed around the functions a business performs (e.g., sales, marketing, finance, engineering, etc.).
  • An org chart is built around people and titles.
  • Organizational structure defines the purpose, accountabilities, and key performance indicators (KPIs) for each business function and role.
  • An org chart shows each person’s job title and may include HR stuff like job requirements.
  • Once correctly defined, a structure changes infrequently—for example, when there’s a change in strategy like a new product initiative or a move up to a new stage in the execution lifecycle.
  • An org chart needs to be updated frequently as people come and go. It’s out of date almost the minute it’s created.
Type Focus Documentation Change Frequency
Organizational Structure Function-centric Purpose, accountabilities, KPIs Infrequent, changes with strategy
Org Chart People-centric Titles, job descriptions, HR stuff Frequent, changes with people

To repeat, you don’t need an org chart to scale your business, but you do need a well-designed organizational structure. And sure, there are key elements of a classic org chart that you’ll want to maintain in a role-centric HRMS to make the job of managing staff, budgets, and HR stuff easier. But I’ll share more on the HRMS in a bit.

How to Redesign Your Business With a New Organizational Structure

Good organizational design has some minimum requirements. Before you even start the design, you first take any consideration for people and titles off the table. You start with a blank slate and think through the functions the business must perform to succeed in its chosen growth strategy now and over time. What are those functions for your business?

In addition to supporting the chosen strategy, a good structure should (1) clarify the purpose and accountabilities of each organizational function; (2) place each major and minor function in its correct location relative to other functions by balancing effectiveness and efficiency, short range and long range, autonomy and control; (3) clarify the key performance indicators (KPIs) of each role; and (4) identify which people are accountable for performing different functional roles.

In a picture, a sound organizational design will look something like this below. And careful: it might look like an org chart at first but there are some major differences:

A sample structure using sound design principles.

A sample structure using sound design principles.

Note that every structure is unique. This structure above is a simple representation of a $15M Inc. 5000 Fastest Growing Company that I helped to redesign as part of my strategic execution coaching program.

Prior to this organizational redesign, the company had stalled out in its growth trajectory and the culture was deteriorating. The team was suffering from role confusion, unclear accountabilities, a lack of real strategic priorities, and stalled execution. Revenues and profits were flat for several years prior. Two years after the redesign, revenues were up 40% and net profits up 30%, the culture was restored, and the organization is now much easier (not to mention more a lot more fun) to manage. Much of this has to do with getting the structure right.

In the structure above, each large grey box represents the major functions of the business. The smaller beige boxes represent the primary sub-functions within those domains. The blue boxes under each major function capture some of the high-level KPIs for that functional area. Calling out the KPIs in the structure helps to bring clarity and focus to the structural discussion and ultimate adoption of new roles by the individuals involved.

Notice that I’m not using titles like “CEO” or “VP of Sales” in the structure. Instead I’m using functional descriptions like “Strategic Execution” or “Sales.” This is because job titles shift the focus to individual egos rather than the role requirements of each function. If the conversation shifts towards appeasing egos, that’s a sure sign that you’re designing the organization around people—rather than functions—and you’re setting yourself up for trouble.

Only after the design is set up correctly for the chosen strategy—again, independently of the individuals involved—should you assign accountability for each function. Note that, depending on the lifecycle stage of the business, one person might be accountable for their primary role in addition to wearing other temporary “hats.”

It doesn’t matter how many staff a given organizational function has, whether 1 or 1000+. What matters at this conceptual stage of the design is that a single person, whether as a dedicated role or wearing a temporary hat, is held accountable for the success of that area of the business. In short, you’re answering, “Who is ultimately responsible for the success or failure of this particular function?”

Also, notice that each function in the structure has a PSIU code. This shorthand code allows the company to have a shared definition of some key management requirements for each role, as well as the type of leader who is best suited to own it. It helps tremendously with hiring and creating role alignment and satisfaction among the staff. (If you’re not familiar with PSIU, I recommend that you read “The Four Styles of Management.”)

While there is an art form in facilitating a process to help the team opt into their new roles in the structure, the first step is always to create teamwide recognition and commitment to the right strategy and structural design before addressing who is will be taking on which roles and hats. If you don’t take this necessary step, the restructuring discussions will quickly devolve into a turf battle among individual egos at the expense of what’s best for the business.

Finally, one might look at the sample structure above and think “silos”. Actually, any pre-existing silos in the business disappear with the adoption of an effective team-based decision making process that creates transparency and cohesion, therefore bringing the new organizational structure to life.

In other words, creating unarguable accountability for the key organizational functions must also be matched with an information-sharing and decision-making process that creates radical transparency and rapid execution across the organization. You can read more about tying strategy, structure, and execution together in Parts III and IV of my book Organizational Physics: The Science of Growing a Business.

A Word About Hierarchy in Organizational Structure

One more thing before we move on. You may be thinking, “Wait, do we really need a hierarchy in our organizational design? That seems sort of old-fashioned. Doesn’t the new school of thinking propose a flat or hierarchy-less organizational design?” Let me address this short and sweet. Yes, your organizational design will have a hierarchy. No matter how flat, circular, or egalitarian you may want it to appear.

For instance, a poster child for “hierarchy-less” management is a methodology called Holacracy, which I’ve written about before in “An Inside Look at Holacracy”.

When you peel back the headlines of the “no boss, no title, no hierarchy” movement, what you’ll find is that these approaches absolutely have a hierarchy. There’s nothing inherently unnatural or wrong with hierarchies. They exist everywhere in both natural and man-made systems. To wit, if I was to gather together the fiercest proponents of hierarchy-less management structures, they would soon form into a new hierarchy of total believers over semi-believers.

Every effective organizational design, no matter its shape, is an attempt to clarify accountability and move the organization forward in its chosen direction with little lost time and energy in its momentum. Hierarchy is not about control; it’s about distributing accountability throughout the organization. The broader the spread of accountability, the higher “up” that role is in the hierarchy. So you can try to design an organization without hierarchy. You can also try to time travel. Let me know how it goes.

The Role-Centric HRMS

Now that you have a basic appreciation for organizational structure, it should be clear that there’s also a need for managing the people within that structure. Rather than trying to translate the structure into a classic org chart with names, titles and lines of reporting, keep the HR stuff in your human resources management system (HRMS). Keeping the HR stuff in the HRMS, while also having the HRMS mirror the design of the structure itself, allows you to have the best of both worlds.

Unlike a traditional HRMS that is title-centric, you’ll want to modify your HRMS so that it is role-centric. For instance, below is a picture of a role centric HRMS:

RoleCentricHRMS

This HRMS creates an organizational tree that calls out the major and minor roles of the company as reflected in the structure. It shows who is playing each role and their number of direct and total reports. If one person was temporarily playing multiple roles (i.e., hats) due to budget or other reasons, their profile would show up in each of those roles. As the structure changes, people are reassigned and roles are added and deleted, as appropriate.

When you click on the name of the role, this links to the Role Entry as shown below. Any number of staff who are currently playing that role would show up in the Role Entry. Notice that the Role Entry includes the purpose, accountabilities, and top KPIs for that role.

ExampleRoleEntry

Finally, the HRMS also maintains and updates all of the employee-/HR-specific information you need to keep, such as name, hire date, payroll information, contact info, etc.:

ExampleEmployeeEntry

Having a role-centric HRMS based on the design of the structure gives you the best of both worlds. It not only allows you to manage the HR aspects of your firm, but also encourages employees to shift out of the “jobs and titles” mindset into thinking about roles, accountabilities, and KPIs. As your organization grows and develops, having this role-centric mindset creates flexibility to move people into roles where they are needed in that moment, without being so caught up in job titles and the status quo. Think “play the role to support the organization’s purpose” vs. “have a job title that describes my worth and status in the organization.”

It’s not only a structure win. It’s also a clear win for your culture.

~~~~~
To learn more about organizational design, see “The 5 Classic Mistakes in Organizational Structure: Or, How to Design Your Organization the Right Way”

By |2015-02-09T18:54:56-08:00February 9th, 2015|Articles|Comments Off on Organizational Design: The Difference Between Organizational Structure and an Org Chart