Equilibrium ...

the new buzzword in business

For large companies, especially multinationals, two opposing views are typically at work when it comes to the optimal way to structure the organization. Each has its advantages, and each will have its proponents and detractors within the business. One view is that the best structure lies in exploiting the cost efficiencies and focus of a functional structure, and the other favors the benefits that come from a focus on the particular needs of specific markets by supporting a geographic region or market based structure. Many organizations sit rather uncomfortably in the middle of these two views which by their nature tend to be mutually exclusive - and in most cases they would admit that rather than being in this "no man's land" of a hybrid approach by design, they are there more by way of a transition from one end of this scale to the other. And it's not uncommon for this pendulum to swing from one extreme to another each few years. We probably all know people who have been in roles that have carried a great deal of "clout" under one structure, only to find when the pendulum swings the other way they are suddenly effectively marginalized. Some, using their "www" (world-weary wisdom) insight have the patience to stick around and wait for the
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pendulum to swing back, and very often it does. For some large organizations, they are in perpetual change with these structural lurches occurring every few years, and no sooner do people become settled in new roles than it's time to look at another change. I once posed the question to the CEO of a listed financial services company "At what point to the abnormal costs associated with restructuring become a normal recurring cost?" There was no simple answer to this, which was prompted by annual reports of this company showing abnormal costs, mainly due to restructuring, of over US$100 million each year for 12 consecutive years. Why do these changes occur, when the disruption, restructuring costs, loss of talent and organizational knowledge and the loss of focus that occurs as a result can be such a drain on a company's resources and energy? My experience is the main reasons for this occurring are likely to be one or more of the following: 1. There is a compelling and rational argument supporting each of the two opposing positions. Proponents of a regional/market structure point towards the advantages of being close to the needs of customers, being able to adjust and tailor products and services for the specific needs of the market, the fact that for many companies service delivery occurs at a market level and it's so easy to "lose the plot" when decision-making becomes remote. Often, they will be able to illustrate this with past experience where someone leading a global function from Helsinki really messed things up because they thought Thailand and Taiwan were the same country and someone else from Idaho committed to an IT initiative without realizing not everyone speaks English. On the contrary side, the proponents will point out the benefits of a global functional structure such as efficiency, compliance, focus of specialization, etc and will be able to illustrate this with examples of how, for example, under a market structure Japan decided to develop a different product line, Brazil changed the colors of the logo, several Eastern Europe markets started to compete with one another, Australia developed its own IT platform, and the organization ended up with an unacceptable level of complexity and duplication. 2. Strong voices and opinions often hold sway, and politics come into play. It's likely there are some strong voices that have a very firm view on the issue, and this can be driven by powerful egos where individuals may see their position or influence threatened, or they sense an opportunity resulting from a

particular course of action. There also may be an element of corporate politics in determining whose views deserve greater attention, or what and who is "fashionable" within the corporate culture at the time. These views may not have a great basis in fact, but they can be very influential in shaping the eventual outcome. 3. New senior management may want to make their mark. The appointment of a new CEO or senior leader if often the catalyst for a major change from one of these extremes to the other. There are times this is the best thing for the organization, but other times where change may be driven more to demonstrate there is a new leader who plans to do things differently so there is an element of "change for change's sake". 4. Structure is seen as the reason for past failures. Sometimes a company will, after examining the reasons for poor performance in the past, decide that the structure was principally at fault. "We lost sight of our customer's needs by living within our ivory tower at head office, and simply lost touch with the markets," can be a reason to completely disband global functions and decentralize. "We became hopelessly cumbersome and top-heavy as a result of duplication and our markets were all pursuing different strategies," could be a reason for changing from a market structure to a lean and focused functional structure. However although structure may be part of the reason for past failures, it is often an easy "scapegoat" and could mask other, deeper reasons that won't be fixed with a new structure 5. People are uncomfortable with the lack of clarity involved in a blend of both approaches. There is much in human nature that looks for clarity and the "mutually exclusive" nature of the functional v regional structure argument tends to polarize views, and assume that there is a "right" and "wrong" answer that lies in getting one or other of these approaches executed correctly. Often the most strident voices are from those supporting one or other extreme and the thought of sitting somewhere in the middle ground gives rise to concerns that such a position may indicate lack of deciseveness, and such a "fence-sitting" approach isn't a good idea - especially if the fence happens to be electrified. What are the options, then, that might prevent the unwarranted cost of implementing a great change only to find that there are as many problems at the destination as there were at the start, and although there are advantages with the new approach there needs to be further restructure to adjust to the

disadvantages? I believe if the Board and Senior Management kept four key things in mind, much of the wastefulness of these pendulum swings could be mitigated. 1. Both approaches are right, and they both have to sit side by side. Yes, it is unclear and can cause friction but the reality is a company needs the benefits of both functional and regional structures to coexist, even though they may by nature always want to separate, like oil and water. Managers must learn the old paradigms of a "command and control" hierarchy are less and less relevant to the modern business world, and true collaboration, matrix management, negotiating and influencing without structural power are the keys to success. The leading edge of this success is what I have termed the "equilibrium" point ... a place in which there is a steady balance that maybe moves a little this way and that, but finds harmony by balancing and accommodating both extremes without gravitating towards one or the other. 2. Raise the bar in establishing clear and tangible benefits before implementing structural change. Boards need to be tougher on CEO's, CEO's on senior management and so on - to question and resist the call for structural change unless it can be proven that it isn't just change for the sake of change; that the decision is made on business grounds and not because of the persuasiveness or self-interest of some protagonists; that the desired position won't present as many problems as the starting point; and that it is really structure that has held the business back in the past or structure that will release future potential. 3. Resist structural decisions driven by ego, not business logic. Newly appointed senior managers need to take a balanced mature view - am I proposing structural change because it will make a real difference to the organization, or is it because I want to be seen to be different to the last guy? When responding to pressure that the current structure "is not working" and changing the structure will be a silver bullet, leaders should be sure there really aren't other reasons, or that the pressure for change is not coming from those who may see their own position or perspective enhanced as a result. 4. Build a culture where structural change is the exception, not the norm. Large scale structural change costs dollars in retrenchments, talent is lost, the focus of the organization turns inward for a time, and there is opportunity cost while new people and processes come up to speed. It also sends signals that

"we got it wrong" and if that happens with regularity it will do little but lower confidence in the brand and its management. Rather than being seen as an organization where restructure is unremarkably common, strive toward an organizational culture where structural change is uncommon, it has clear strategic benefits, and needs to occur to allow the organization to capture future opportunities in a changing world, rather than an excuse for failing to do so in the past.

Equilibrium Management
Finding the point of equilibrium between the extremes of functional and market structures - as well as many other management challenges - should be the aim of managers that want to produce optimal results in a sustainable manner, while minimizing the risks that major "lurches" in strategy and structure can entail. Equilibrium Management recognizes 1. There can be multiple "right" answers, even if they may seem to contradict one another 2. Resolving and simplifying an issue into a decision between one approach and another might be desirable in terms of clarity, but finding a balance between both approaches - although more challenging - may be the best approach 3. A solution doesn't have to be rigid or static, but will flex, adjust, and be dynamic - but always with a view to finding the optimal win/win 4. People who can only function where they have clarity in terms of there being a rigid set of rules or structural hierarchy will be challenged with this approach Keep your ears and eyes open ... I believe you will see much more on this topic and the use of the word equilibrium and the term Equilibrium Management over the next few years.

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About the Author: A veteran of the Asia Pacific business scene, David Christensen is an Australian (with New Zealand roots), currently based in Bangkok, Thailand where he is CEO of premium skincare and anti aging products manufacturer Royal Siam Natural Health and Beauty (http://www.royalsiam.asia) Having lived and worked in 14 countries as wide afield as Russia, India, and Japan, David has a background in advertising with Saatchi & Saatchi and DDB, extensive international business strategy consulting experience as a Partner with Gravitas Partnership in Hong Kong, and senior regional line management roles across Asia Pacific with American Express, Carlson Wagonlit, and AXA Asia Pacific.

Author: David Christensen, October 2012

His LinkedIn profile can be seen at this link LinkedIn Profile and you can contact him by email at [email protected]