My older son, who works for a Fortune 200 company, mentioned this morning that his company was going through yet another reorganization to improve results, or efficiency … or something. I remember telling my dad the same story, and I suspect he told his dad that story also.
The latest reorganization driver in corporate America is to seem to be more customer-centric. One of the buzz words or maxims of the day is the need to be more focused on the customer. Good idea, except it usually involves a need to change processes to serve the customer well at the expense of making it easier for a company to operate.
Don’t misunderstand, I am in 100% agreement on the value of customer-focused business. Without customers, businesses don’t last very long. However, saying your company is customer focused won’t, in the words of John-Luc Picard, make it so.
Over the past 10 years, according to research from Lehigh University reported in the July-August 2015 Harvard Business Review, many companies have reorganized based on customer segments as opposed to product or service lines. The research notes that about 30% of the Fortune 500 have taken such an initiative. It further noted that performance (measured as Return on Assets in this research) in those reorganized companies dropped an average of 39%, and did not recover for an average of 10 quarters (2.5 years). However, it then rose an average of 11% by the third year.
The conclusion of the research, as reported by HBR, is that “CEOs should… make sure everyone understands that performance will sag before it rises.” Maybe, but I see no root cause reason why performance should sag for 2.5 years.
I accept that in a significant restructuring employees may be confused for a while as to their new roles and responsibilities. But really, 2.5 years of confusion seems like poor management to me.
I suggest the real issue is that reorganizing by itself does not inherently make a company customer-centric. It is simply window dressing. Organizational structure should follow process and the process must focus on an outcome. If the desired outcome is loyal profitable customers, it is likely that a process that is customer-centric will be required. Once that process is designed, its implementation may involve a new or different organization structure. However, hoping that changing the organization will change the process … Well as they say: hope is not a strategy.
Happy New Year.
Mitch
