First Look Outside

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From the Ask Tom mailbag-

Question:
Our company is preparing for our annual strategic planning session. Sometimes, it just seems like an exercise to increase our net sales by ten percent and our net profit by two percent. If that is all we are doing, why do we spend two days off-site?

Response:
Some companies think that to increase our net sales by ten percent, we just need to increase our sales team and their efforts by ten percent. Some companies think that to increase our net profit by two percent, we just need to become more efficient and cut waste by two percent. These may be worthy objectives, but we hardly need two days off-site to think like that.

Strategic planning requires that we look at those external circumstances that are constraining the defined objectives in front of us. Adding ten percent more sales people to the team will not increase sales if our market is no longer interested in our product or service. What has changed about our market? What has changed about our competitors? What has changed about our vendors?

Cutting waste by two percent does not inform us about the changes in technology that create efficiencies on the order of 10 percent or 20 percent. What has changed about technology surrounding our business model? What has changed about our external labor system that may require us to look harder at technology as a solution?

What headwinds are created by new regulations, financial regulations, safety regulations, environmental regulations? What is the financial climate for infusions of external cash, lines of credit, institutional debt, private equity?

Most of these questions are not about internal factors, but external systems that have an impact on the way we internally organize.

Customers, Strategy and Structure

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Structure follows strategy. Strategy follows customers. It all starts with a customer.

  • Who is your target customer segment?
  • Who is your best customer?
  • What is your best customer’s profile? How do we recognize them?
  • What does your customer need? What is necessary in your customer’s life?
  • What does your customer want? What is your customer’s preference?
  • How will you collect that data? How much data do you need?
  • How will you analyze that data?
  • How will you verify the accuracy of your analysis?

Strategy follows customers?

  • Based on what your customer needs, what is necessary in your customer’s life, what product or service can you produce to satisfy that need?
  • Will your customer be willing to pay a price for your product or service that allows you to make a reasonable profit?
  • In the profit for your product or service, is there enough volume to sustain your company’s operation?
  • Is your product or service exclusive to your company, or do competitors offer a similar product or service perceived on an equal basis?
  • Based on your customer’s preference, what will make your customer decline your competitor’s offering and buy from you? What is your competitive advantage?
  • How can you create that competitive advantage in a way that is sustainable, difficult or impossible to copy by your competitor?
  • How can you effectively communicate the competitive advantage to your customer?
  • How can you operationalize your competitive advantage to make is real, observable and obvious?

Your responses to these questions will guide your structure.

  • What core functions do you need to create the product or service your customer needs?
  • What support functions do you need to meet your customer’s preferences in the way they want to buy?
  • In each function, what is the level of work required to sustainably produce the desired outputs?
  • In what way does each function need to integrate with its neighboring functions related to work handoffs?
  • What is the output capacity of each function, and how does its output match the output capacity of its neighboring functions?

Customers drives strategy, strategy drives structure.

What’s the Level of Work Required?

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From the Ask Tom mailbag –

Question:
You say that management initiatives (like communication, efficiency, goal setting and teamwork) will flounder if laid on the wrong structure. How do you get your structure right?

Response:
Determine the number of layers (only minimum necessary).
Determine the functions required.
Inside each function, determine the level of work required.

You are the captain of your business model, you get to decide the level of work that is necessary. Think about core functions and support functions. Some functions will require more intensity than others, and some functions not at all.

  • Marketing – If your business model only requires a brochure type website that gets updated from time to time, you will likely outsource that project, and need only skeleton support in marketing. If your business model requires a sophisticated website that attracts customers who roll over into an online order, you may need Marketing at S-III.
  • Sales – If your business model is a telephone center receiving product orders from consumers, likely 2-4 minutes on the phone, you may only require order takers at S-I. If your sales cycle is longer, 3-4 months, you may need S-II account executives. If your sales cycle is longer than a year, you may need S-III.
  • Account Management or Project Management – The level of work you need will likely depend on the length of your project. Two to three weeks with very few moving parts may only require Hi-S-I. If your projects are 2-3 years in scope, you may need S-IV project management.
  • Operations – the level of work you need in Ops will need to consider the length of time the project is in direct service delivery or production, but must also account for the lead time on resources, mechanical maintenance, or special technical elements.
  • Quality Assurance or Quality Control – may require timespan consideration through the production cycle, but may also need to consider the length of warranty periods or product lifecycles.
  • Research and Development – in new product development cycles, level of work may easily require system work and root cause analysis at S-III. Sustaining engineering may only require S-II.
  • Logistics – may be just in time loading dock work at S-I, but may also include long term contracts with taxi trucks in Melbourne.
  • Human Resources – level of work depends if you only need clerical filing of required forms, active recruiting from your labor system, or strategic recruiting in specialized technical fields.
  • Accounting and Finance – level of work will depend on the sophistication of your accounting requirements, simple bookkeeping to project costing, to credit facilities.

You get to decide the level of work required.

Define Your Functions

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From the Ask Tom mailbag –

Question:
You say that management initiatives (like communication, efficiency, goal setting and teamwork) will flounder if laid on the wrong structure. How do you get your structure right?

Response:
Determine the number of layers (only minimum necessary).
Determine the functions required, and the level of work required in each function.

You are the captain of your business model, you get to decide. Think about core functions and support functions. Some functions will require more intensity than others, and some functions not at all. Quicklist –

  • Marketing
  • Sales
  • Account Management or Project Management
  • Operations
  • Quality Assurance or Quality Control
  • Research and Development
  • Logistics
  • Human Resources
  • Accounting and Finance

Your business model will determine the functions you need and the level of work in each function. Often, your core functions are related to operations, and carry more robust levels of work. Your support functions are there to support the core – business development, marketing, human resources, finance and may not require a full complement of levels of work.

How Many Layers?

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From the Ask Tom mailbag –

Question:
You say that management initiatives (like communication, efficiency, goal setting and teamwork) will flounder if laid on the wrong structure. How do you get your structure right?

Response:
There are a number of steps, let’s take them one at a time.

Limit the number of layers to the minimum required. Layers are necessary, but no more than necessary.

Stephen Clement (co-author Chris Clement) in their book It’s All About Work, describe the non-warfighting side of the US Army with 12-15 layers, but the warfighting side only seven layers. Tested in the crucible of combat, too many layers between the top and the bottom got people killed. The US Army is a very large organization and only needs seven when it counts.

  • S-I organization, typically a Mom and Pop who are self-employed only need one layer.
  • S-II organization, is a Mom and Pop, self-employed, but want a day off. They need two layers.
  • S-III organization, contains a single core function, does it well, with only a skeleton of support functions. Three layers.
  • S-IV organization, has a robust internal core function with healthy, mature support functions, integrated together. Four layers.
  • S-V organization, robust internal core function, integrated internal support functions, sensitive and responsive to external systems like market, regulatory, finance, labor, technology. Five layers.

Most domestic small to medium size businesses up to several thousand employees can be managed with no more than five layers between technical production (S-I) and the business unit president or CEO (S-V). Limit the number of layers to only what is necessary. Also, forming a texas llc provides a streamlined business structure that supports efficiency.

Why Structure?

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From the Ask Tom mailbag –

Question:
In your workshop, you say that everything starts with structure, or organizational structure. There are so many other management issues to focus on, like communication, efficiency, goal setting and teamwork. Why do you always focus on organizational structure?

Response:
You are correct. Communication is important, lean initiatives bring efficiency, goal setting keeps us focused and teamwork helps us work together. But, all of those efforts will underperform if undertaken on top of a faulty structure. You may even see short term improvement by setting goals, or being more efficient, but in the long run, a faulty foundation will rip those improvements apart.

Get your structure right, and many of your issues related to management and motivation will disappear (almost overnight).

What is Accountability?

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From the Ask Tom mailbag –

Question:
You talked about structure being the way we define working relationships related to accountability and authority. What is accountability? measuring expectations or consequences that can come with results?

Response:
Accountability is an agreed upon output for which we are held to account. It contains four parts –

  • Quantity of something, could be a quantity of one or quantity of many.
  • Quality standard, must meet some qualitative standard or measurement.
  • Time, either a specific deadline or a specified evaluation period.
  • Resources, within a set of limited resources or constraints.

The output must be agreed upon. I like formal agreement on important accountabilities, even signatures on a contract. For which we are held to account. Not for which we are held accountable, because I cannot hold anyone accountable for anything. But I can hold someone to account, meaning the person holds themselves accountable for the agreed upon output. I like the accounting part to be held in a regularly scheduled 1-1 meeting with the person’s manager.

Here is what it sounds like in a role description’s key area.

Prior to the end of (period), a report will be published counting all of the finished goods that meet our quality standards, including the quantity of rejected goods, within the constraints of our assembly line. That report will be reviewed monthly in a regularly scheduled 1-1 meeting with (role’s) manager.

Prior to the end of the project timeline, a report will be compiled and published of each of the project’s components related to the standards specified by the architect and its inspection (sign off) by the building inspector. That project report will be reviewed three times during the project, after mobilization, midway (50 percent) and post punch-list in a regularly scheduled project review meeting with the (role’s) manager.

Leadership Charisma

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Leadership is a billion dollar business, yet all around us, we rarely see effective leadership. There are books, seminars, groups and programs to build better leaders (that’s the billion dollar business), yet much of that effort is wasted and fruitless.

The effectiveness of an organization is based on its structure and the role of leadership is to design and build that structure. Effective leadership has less to do with charisma and personality, more to do with building an organizational system to get work done.

Structure begins with the founder, a structure of one. There is work to be done and the founder is doing the work. There is always work left over, so the founder hires three or four people. These people do a little bit of everything. The work is organized around the scarce resources of infant structure. At some point the founder realizes the work can no longer be organized around the people, the people have to be organized around the work.

Organizing the people around the work requires that specialized roles be defined, tasks, activities and expected outputs from those activities. This is the emergence of roles.

This organization is no longer a structure of one, but a structure of many. It is not enough for each person to play their role, the roles have to be designed to work together, more complex than a structure of one, a structure of many. And, organizational structure is born.

Organizational structure is simply the way we define the working relationships between people. The two things that must be defined are –

  • In this working relationship, what is the accountability?
  • In this working relationship, what is the authority? Authority to do what? Make decisions and solve problems the way I would have them solved.

And, so the structure of one becomes the structure of an organization. I don’t care about your personality or charisma as a leader. I only care whether you can design and execute the structure, to get some work done.

Communication Problem Only a Symptom

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From the Ask Tom mailbag –

Question:
Hi Tom. In the seminar I attended, you said something about communication not being an issue in an organization, and I was surprised at that, as I believe communication is often a problem in organizations. Maybe I misunderstood. Will you please elaborate?

Response:
Communication breakdowns are often a symptom of a deeper darker problem.  Companies believe they have communication issues, so they conduct a communication seminar that RARELY solves the problem.  Whenever a client reports a communication problem, I start with accountability and authority.  The identified communication problem is a symptom of an accountability and authority problem.  Communication breakdowns can help us locate the problem, but not to resolve it.

Most communication problems are between two people who have to work together, but are not each other’s manager.  This is the dotted line phenomenon on most org charts.  The problem with the dotted line is the undefined accountability and undefined authority.  As managers, we hope the two will be able to figure it out, which is where the communication breakdown begins.  Technically, these are cross-functional role relationships (two people who have to work together, but are not each other’s manager).  When we define the role relationship, we have to define the accountability and the authority in that relationship.

Example –
Would it be a good idea for sales to coordinate with marketing and marketing to coordinate with sales? Yes.
 
But, is the Marketing Manager the manager of the Sales Manager, and is the Sales Manager the manager of the Marketing Manager?  No.  

But, do we require they work together in a coordinating relationship?  Yes.  That sounds great until one begins to complain about the other, and so, we think we have a communication breakdown (or worse, a personality conflict).  What we failed to define in that working relationship is the accountability and the authority.

In a coordinating relationship between the Sales Manager and the Marketing Manager, who each are accountable for their respective budgets, can we require they consult with each other and coordinate their budgets to leverage that working relationship?  Yes.  Why?  

Because we said so, by virtue of a coordinating cross-functional role relationship.  They are required (accountability) to schedule meetings with each other to consult, share information, resources and tactics.  Each has the authority over their respective budgets, but they are required to coordinate.  When we make the accountability and the authority clear, the communication breakdowns disappear almost overnight.

Touch Points

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If it doesn’t show on the screen, it doesn’t exist.

I spent many years in television production. Many decisions were made related to project costs and value add. Our mantra was, “if it doesn’t show on the screen, it doesn’t exist.”

Your company has the same dilemma. Where do we place our precious resources related to the customer experience?

Step one is to map out all of your customer touchpoints, that’s your exposure. Those touch points are where you can break a customer relationship or cement it.

  • That first incoming telephone call to your call center.
  • A casual inquiry or clarifying customer question.
  • The exterior of a service truck.
  • An outbound email as part of a customer campaign.
  • How a customer opens the box containing your product.
  • What happens when (if) your product breaks.
  • A hundred more.

If an element of your product or service offering is critical but invisible, how do you get credit for it as your competitive advantage?