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Thought Thursdays

 When a Small Business Grows – it also needs proper organisational design:

2015-03-17 16:00
Terry Meyer
Arguably the most dangerous phase in any organisational life cycle is that point where it moves from a very small, entrepreneurially driven business to one in which more formal systems and structures are required. Typically, when it moves from 20 – 50 people to a 100 or more people, a redesign process becomes necessary.

I recently spent a short time with the Exco of a business that had grown to about 100 people and it provides a good illustration of the issues involved.
The business was focused on providing a variety of diverse services to a particular industry but had grown through increasing the number of business lines, either fully owned or through majority held JVs. Each business line was run relatively independently but under the close control of the top management in the form of an MD, Deputy MD and FD. Furthermore, a number of new, innovative business lines were in the pipeline.

What emerged in the discussions were a number of organisational design principles that would fundamentally change the way the business was run.
Firstly, the Exco needed to change its view of its role from hands on management to that of a “holding company”. This “holding company” would derive income from 2 sources: investment returns from the various business lines, and from management contracts for the management and support services it provided to each business.

Secondly, while each business line would retain a front end, customer facing structure with its own branding and strategy, the back end activities would be split between the business line and centralised support. Hence the business identity would be retained and remain agile to provide the necessary products and services required by the market and customers.

Where support services were unique to the business line concerned they would be retained in the business. However, transactional and professional support services that were common to all the businesses, e.g. call centres, legal, finance etc., would be centralised under a professional services Executive, in this case the FD.

The value of this centralised professional services approach includes efficiencies and elimination of duplication as well as centres of excellence with deep expertise.

The final Exco structure would then involve the MD, a COO who would manage the business lines and the CFO who would provide a holistic professional services function. A further role would be that of Business Development Manager which would be responsible for managing new, innovative projects until they became fully fledged business lines, after which time they would revert to the COO. The advantage of this is that current operations, generally cash cows, are driven by efficiencies; new businesses are driven by innovation and thinking outside of the traditional business “boxes”. They also need to be able to source cash from the business or elsewhere on their merits.

In my experience there are many organisations, both large and small, that can benefit from such an organisational model. The problem small businesses face is that they grow rapidly and organically and, at a point, they need top management to stand back, take stock and redesign the business based on an optimal organisational structure.

There are many other things that growing businesses need to review such as processes and leadership style. However, organisational design frequently provides the basis for reinventing the business holistically.

Leadership SA has considerable experience in organisational design and can assist organisations to determine their organising principles and transition from their current state to an optimal design.

Terry Meyer is a strategy and leadership consultant, academic, author, blogger and keynote speaker. He is also a part time Faculty member of USB-Ed where he is responsible for the HR Executive Programme.

His areas of expertise include strategy, organisational design, leadership, and human capital strategy. He has written and edited 6 books, the latest being Strategy, Leadership and Change: A Practical Guide for Busy Executives”.

1 Comment
Posted by on 08-05-2015 9:15 AM


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