Dealing with Structural Imbalance

I once worked with a medium-sized oil services firm (i.e., a supplier to oil companies) that seemed to have an “unbalanced” organization structure. The official organization chart looked something like this:

…but in reality, one business unit was far larger than the others and was viewed as a “state within the state”. So if we were to draw the units according to size, the organization chart would look more similar to this:

I was reminded of this case because I am interacting with two different organizations right now that have a similar issue.

But does it really matter whether an organization is “balanced” or “unbalanced”?

The members of the large unit can claim (and rightly so) that their unit is big because it’s successful! They have probably been able to grow in size because they have been doing the right things! So why should they be penalized by being forced to split into smaller units and accept positions with less responsibility?

Well, I hear that, but structural imbalance does represent a cause of concern and it is the responsibility of the leader of the organization to make sure that the system, and not only the parts, are optimized.

There are at least two potential challenges. The first is political: Size equals might. A large unit can come to dominate the internal agenda-setting and decision-making processes. In the management team, the executive vice president who is responsible for 70% of the revenues is likely to have more power and influence than the three colleagues who represent 10% each. The other units may be small today, but may also represent emerging businesses that one need to support.

There is also a tendency that the performance criteria of the large unit dominate the entire organization. So if the largest unit (or practice group) in a project management firm is measured on, say, hours sold, it is typical that all other units are also measured on this KPI, no matter what they do (the other units might perform more specialized services that should be measured on other indicators, such as the hourly rate charged and profitability).

The second challenge is duplication. In the oil services firm I mentioned above, the large business unit had its own staff functions (e.g., Finance, IT and HR), duplicating similar staff roles at the corporate level. This was not only costly in terms of the extra positions, but created an additional need for coordination to align policies at the corporate and business unit level.

In addition, letting a unit grow into a large and monolithic structure may not be the best solution when it comes to resource sharing across different units in the organization.

So how should we proceed? The solution will of course depend on the circumstances, but I would suggest a couple of things that we can do to better understand the current situation and evaluate the future options.

The first is to look more closely at what the teams or sub-units within the large unit actually do. To what extent are they dependent upon each other? In other words, we need to consider the work processes and the interdependencies. Similarly, to what extent do they work – or to what extent should they work – with teams in the other units? The results of such a mapping may look like the image below.

If the teams are relatively independent of each other internally, yet strongly related to teams in other units, you should “disaggregate” the large unit and find a new grouping that reflects the work processes. On the other hand, if you observe that the teams are strongly related internally (within the large unit), with few synergies toward other units, it might be an argument for spinning off the large unit into a separate organization.

In either case, you may use our tool Reconfig to do this kind of analysis 😊.

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