The Decision-Driven Organization

The Decision-Driven OrganizationForget the organization chart- the secret is to focus on decisions, not structure.Submitted To: Prof. Parvaiz TalibSubmitted By:Aditya Sharma(14MBA22)Prakhar Jain(14MBAIB11)1ContentsIntroductionOrganizational Structure Yields Performance: A Myth - The Case Of Yahoo!What Drives Better Organizational Performance??Decision AuditSteps In Decision AuditHow To Build A Decision-Driven Organization?Six Steps To Decision-Driven ReorganizationFinal Thoughts

IntroductionIt is a popular belief among the CEOs that organizational structure is a key determinant of the financial performance whereas the fact is that a companys performance is the sum total of the decisions it makes and the actions it takes. Structuring the organization to optimize decision making and execution is actually what that helps in yielding better results.Organizational Structure Yields Performance: A MythThere is a general assumption that Reorganizing through the restructuring of the organizational structure of a company has a direct link with better performance. BUT, a study of 57 reorganizations conducted by BAIN & COMPANY found out that more then two-third of them had no effect and rather some of them actually destroyed their value....the case of YahooIn Dec.2006, the then-CEO Terry Semel announced the reorganization of their company.They merged 7 product units into a group called Audience.Another 7 product units into a group called Advertisers and Publishers.A new unit named Technology was developed to provide infrastructure for these two new operating group.Desired Results: to accelerate economies of scope.Actual Results: slowed-down decision making and execution and increased overhead costs.

What Drives Better Organizational Performance??A companys structure results in better performance only if it improves the organizations ability to make and execute key decisions better and faster than competitors. If the organizations structure be sync. with its decisions, then the structure will work better and performance will improve.ContinuedBain and Company conducted a study on 760 companies to rate their decision effectiveness on the following 4 parameters-Decision QualitySpeedYield, andEffort

findings of the studyDecision effectiveness and Financial results correlated at 95% confidence level or higher for every country, industry and company size.Top-quintile companies generated Average Total Shareholder Returns nearly 6 percentage points higher.There was no strong statistical relationship between Structure and Performance.In reorganization, Decisions rather than Structure should be the primary focus.

Decision AuditExecutives mostly begin reorganization with a SWOT Analysis, and in doing so they generally ignore the critical decisions needed to be made.SWOT Analysis ideally should be done while determining companys strategies.A better way to initiate reorganization process is through Decision Audit.

steps in Decision Audit1) Identifying key decisions to create maximum value for shareholders. These decisions can be of two types-i) Big, One-off Decisions, andii) Small, Routine Decisions

2) Figuring out where in the organization should these decisions be made.

How to Build a Decision-Driven Organization?To determine what important decisions are, the management should look at the source of value in the business and the organize the macrostructure around them.Case of British Gas (a division of Centrica)The company faced serious performance crisis in 2006.The management examined the sources of value- profitability by service, by geographic area, and by customer segment.Discovered that profitability and growth varied much more by customer segment than by any other variable.MD Phil Bentley decided to re-structure the company by customer segment.Established three separate businesses: Premier Energy, Energy First and Pay-As-You-Go Energy.Benefits ReapedIt helped in placing accountability for decisions that directly affected customers.Corporate headquarters could focus on noncustomer-facing matters.Helped in improving its performance.Customer attrition fell from 20% to 10%.Bad debts fell.Business grew again for the first time in years.

Six Steps to Decision-Driven Reorganization

Final ThoughtsReorganization done merely on the basis of re-structuring of the organization chart generally fails to deliver meaningful improvement in performance.A culture of fast, effective decision making and action through out the organization enables true flexibility and responsiveness.Companys assets, capabilities and structures are useless unless the managers make the essential decisions and get those decisions right.Thus, in this rapidly changing business landscape, executing right decisions better than others is the key to success!