Organizational maturity challenges are a reflection of design dilemmas and decisions that companies go through in order to create new competitive advantages, maintain existing ones, or old ones in response to a changing market place over time. Unfortunately, insight into the longer term and systemic issues that each decision creates and trade-offs are often ignored, misunderstood or missed completely.
What are some of the factors that drive maturity? Increasingly fierce competition leads companies to make choices about how to differentiate from their competitors. They may choose to drive innovation, to grow through merger or acquisition, to drive for economies of scale, to create new products and services, or to withdraw from markets.
6 Organizational Maturity Challenges To Overcome
Having a good design founded on a well thought out strategy, solid design principles, and practice creates the conditions for the organization to be a dynamic and responsive system able to quickly respond to customer needs. Organizational maturity challenges include the difficulty in responding to emerging context for several reasons once an organization is established. An outsider’s view may reveal a lack of agility, but in our experience, companies with the right design can be quick to respond, regardless of age. The organizational maturity challenges are often a combination of factors, not just one thing or another.
Let’s take a look at 6 common maturity challenges to overcome that we have seen arise in evolving organizations.
Outdated Operating Model
As time goes on and the organization matures, parts of the overarching operating model change without much thought about the implications on the entirety of design. It’s an issue we have covered before at OTM. A bit gets added or taken away. Perhaps a new CEO does a managerial restructure, which looks neat on paper but actually disrupts the value stream and end customers as a result. Management makes changes in isolation, without a holistic view.
Often these design changes are incremental. Therefore, in the beginning the bottom line isn’t impacted. Later in the business cycle, the company may start to notice warning signs, such as reduction in profits, increased costs, unhappy customers, or increased employee turnover. At this point, there are often knee-jerk reactions, some of which we cover later. A mature organization that is functioning optimally is aware of its environment and how fit for purpose or not its core operating model is.
The best way to achieve this awareness is through building in a review of the core operating model as part of the annual business planning cycle. In doing so, the organization can identify what is working using systems-based tools such as the OTM Applied Star model.
A suboptimal operating model can focus attention in the wrong places. The fundamental basis of a company is value creation for the customer. What often happens as a company matures is that it employs streamlining techniques such as lean, six sigma, lean six sigma. When used within the context of the overarching operating model and value stream, these techniques can be useful in driving out unnecessary processes and costs. However, such techniques are often employed in isolation. For example, a function or team decides to ‘lean’ its processes but doesn’t include all involved stakeholders. Before you know it, on paper they have what looks to be an improved work process and reduction in costs as a result. The project leader also looks great when they present the findings at the board meeting.
However, what can and does happen is that the rest of the system is disrupted by the change. Costs may have simply moved to another part of the business that may then have to work around the changed function. In reality, the organization might actually see an increase in costs as a result.
Organizing within clear governance arrangements for the overarching design is critical to maintaining the operating model. This is not to say that a manager cannot make changes, nor does it need to slow change down. But what it does ensure is that changes are made within a wider strategic context that is logical for the whole, not just part of the organization.
Low Growth or Declining Market
Low growth or demand for your products or services might be a sign of a declining market, or that the organization is not in a fit state to compete in an already mature or disrupted market. It could also be an early warning sign to withdraw from a market segment to focus on one that the company has strength in or to renew the operating model.
Firstly, the organization needs to be clear about the underlying reasons for lack of growth. Has a market competitor arrived with a differentiating feature that your organization is not providing? Is the whole market slow or reached its peak and nearing decline? Think about mobile phones, for example.
In recent years, two platforms have come to dominate the market: Android and Apple. Essentially the platform market has matured leaving no room for growth based on existing value alone. Apple leverages brand loyalty and releases one or two new products or revisions of existing products per year. They have a clear strategy for a market that is now very mature. Android is owned by a complicated arrangement (with Google, Sony, Samsung and others), but essentially much of the software is developed using open source. Still, the players in the market release iterations of prior products and the value to the customer is similar to Apple in that nothing much changes other than the odd new feature that might appear. Eventually, the customer might be forced to buy or upgrade because of software update incompatibilities. But this is really a strategy to force a purchase through innovation rather than accessing untapped market demand.
A maturing organization might find that a product or service has application elsewhere. If an organization is regularly reviewing its operating model alongside its business strategy, they can see where the customer-perceived value is and where things are starting to shift. Strategy is not just a management buzzword. It needs substance behind it and a fit for purpose operating model to deliver it.
New Growth Opportunities
As organizations mature it’s easy to keep going as usual, particularly if you’re situated in a market that is steady and your revenue and profit margins are healthy. However, as the previous section suggests, markets change and decline. Often, companies see a bad year as a ‘blip’ and carry on as usual. Similarly, a frog doesn’t know it’s boiling to death if it’s placed in cold water and then heated gradually. One bad year might turn into two, then a third and that’s often when ON THE MARK is called in.
As markets change, so should your business direction to keep track of where customer value is being created. As the business direction changes, so should the operating model and organization design. As part of a wider strategy, a mature organization should be aware of its revenue source and where new opportunities emerge. The latter is an overt strategic imperative. It isn’t something that happens by magic. Horizon scanning, innovation hubs, employee incentives for new products and services are all part of a design framework that are enablers.
The fundamental focus is that you are designing to search out new growth opportunities as part of your overall operating model. Some companies have innovation as part of everyone’s roles, others might have a specific R&D unit. There are many ways that companies might approach the issue at hand, but the starting point is value creation and the associated operating model that supports this.
As organizations grow, an exponential amount of data is created every second. In the digital age, organizational maturity challenges arise when organizations don’t know how to create value from years of stored data. Data is the new currency. We’ve heard this so much in the last few years that for many of us in the OD field, it’s almost a cliché.
However, the power of data that companies have access to is critical to maintaining a competitive advantage. Whole markets have been disrupted in recent years, because the customer is willing to give away personal information through mobile technology in place of ‘free’ or low-cost apps with associated services. Without getting into the ethics and politics of the recent issues Facebook and others have faced, we know that data is becoming increasingly important. It’s also becoming target for regulators, particularly in Europe with GDPR.
Whatever the tactics a company employs to respond to the changing environment, you need to have an awareness of how and when you are able to use the data. You are then able to consider how you can use it to maintain your advantage over competitors. If you’re behind them, what strategies can you employ to catch up? (We recently wrote about the issues Whirlpool are facing as a result of market disruption through the use of data). Where do you focus attention to create new competitive advantages that others have yet to be exploit? This is really connected to the previous section about new growth opportunities and the one before about mature and declining markets.
Data is a tool to be leveraged. It isn’t a strategy. You need to be clear on where you are and what your competitive advantage is. Is it relevant, and if not, what needs to change within your business direction in order to continue to add value and reap the benefits. One of the important issues this draws out is maintaining appropriate company data on customer and employees and learning how best to use this to your advantage through appropriate design of the organizational system.
Data is not just the responsibility of the tech guys in the back room somewhere.
Centralization Versus Decentralization
That old chestnut again… . Anyone that’s been working in organizations for a reasonable period of time will understand why I’ve used this term. Every now and then, a leader will decide that a department or function needs to get closer to the customer. They can see part of an issue and the solution is decentralization of the management arrangements. Then later on, maybe a financial issue hits the organization or another leader notices that they could save money through centralization of the management arrangements and still provide the customer the required services. This thinking is wrong.
Management is a relatively small part of what an organization is or does. Changing the management structure moves the deckchairs on the deck of the ship. Usually its impact is a number of unintended consequences and a lot of unseen chaos later on. It’s important to note that management is not value creating, it is value enabling. The value creation and the stream of work that flows through the organization is how the customer receives value.
In short, a managerial restructure disrupts the flow of activity. Affected managers and employees respond by changing operating processes, usually in isolation until their part of the pie is settled. Then a chain reaction occurs as the rest of the business responds and puts in place new processes. Before you know it, you have one big mess, or as we call it at OTM, a complication. The starting point needs to be Business Direction and End to End Value Stream. These are key to redesigning the management structure, which then enables activity and assists employees to get the work done. Starting with redesigning the management structure in isolation, then leaving out the rest of the STAR model leaves the organization to fudge and fix problems.
Stuart Wigham is Content Manager & Consultant at ON THE MARK. In business for 28 years, OTM is a global leader in collaborative organization design solutions and business transformation. We have a passion for collaborative business transformation that sits at the heart of OTM, supported by pragmatism, systems thinking, and belief in people.
If your business is facing organizational maturity challenges, contact us to learn how our collaborative solutions can sustainably transform your business.