Scaling Up the Organization (Chart!)
by Verne Harnish "Growth Guy"
May 30, 2013 12:36 PM ET
Remember the days when your start - up team was crammed into a single office like clowns squeezed into a Volkswagen? Now you may have 150 (or 1,500) employees and find it infinitely more difficult to know how to divide up into teams and set clear accountabilities. Worse, both customers and employees may seem confused about how to navigate your organization.
The CEO can take a clue from nature to solve these problems. Human organisms are made up of billions of cells versus just a few specialized ones for a good reason: A cell can only get so big and stay healthy. Once it reaches that point,the outer membrane won’t have enough surface area to bring in nutrients and eliminate waste to support the cell. The cell will start to die from the inside out (like big bureau
The first natural organizational split is by functional area. At Gazelles we have a one - page Function Accountability Chart (FACe) that helps CEOs get clear about the accountabilities and metrics for each of the main functions in a business. But once the business gets above 50 employees, you also need to start aligning teams around product groups, industry segments, and geographical regions. This is commonly called a matrix organization. Visualize functional groups running vertically and business units running horizontally.
The pressure to create these new business units will usually come from customers. They’ll complain that they don’t know whom to call to get help - or that they get the runaround when they finally reach someone. Or they may feel overwhelmed by the crush of communications that come from multiple business units. Employees may not know from whom to take direction.
To navigate this organizational transition, you need to change your leadership structure. The functional heads - like the directors of marketing and IT - who have been used to driving the business, have to step up to being more like coaches/advisors to the business unit leaders. And the business unit leaders need to start running their units as if they are mini - CEOs.
This transition is hardest for the traditional functional leaders - especially those who were around in the earlier start - up phase. They have to go from telling to selling, as they manage their teams. And they need to spend more time outside the organization garnering best practices and then come back and spread what they’ve learned among the business unit leaders. Most importantly, they have to earn the respect of the business unit leaders because of their knowledge, not just their position. That way, if they suggest a common IT system, for instance, it’ll be an easy sell, not a battle against skeptical business unit leaders.
Once you set up these groups, you’ll need to figure out which employees belong in each. If you aren’t clear on this, your employees won’t be either.
The key principle here is being clear who decides whether an employee gets a raise or promoted. The mistake is to leave this decision to the functional heads. For instance, say Tom is providing marketing support to several product lines. The functional head of marketing for the company must see her role as a trainer/coach to Tom while making it clear that his performance is based on feedback she gets from the heads of the business units he serves and not on what she thinks. This way he remains responsive first and foremost to the business units.
Once you set up an org chart, you’ll know very soon if you’ve gotten it right. Customers will be happy, and everyone on your team will be clear on his or her role in serving customers. And when you notice a pattern of negative feedback from customers or see internal signs that your “cells” are not healthy - it’s time to revise your org chart again.
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