Tag Archives | organizational structure

How to Make Dramatic Changes in Business

How to Make Dramatic Changes in Business

Recently, we had a coaching participant mention to us how her company was wanting to make a huge change in their business that would ultimately destroy the current business.

This happens more often that you would think…

The owner or founder of the company wants to make a shift, a change, but the leadership did not full think through what that would actually look like.

In our coaching participant’s case, her company had been around for a long time. They were known widely for their innovation. They were also a non-profit. The founder wanted to convert the company into a for-profit entity.

That change would change EVERYTHING.

In fact, it would be an entirely different company.

In this week’s blog, we look at how to make dramatic changes in business while avoiding catastrophe and how to reinvent your company.

Change requires a strong leader. Learn how to be a more effective leader here.

How to Make Dramatic Changes in Business

When a company makes dramatic changes in their organization, it’s important to ensure the change will be sustainable and has the benefits outweigh the risks. This starts with questions like…

How can we better develop our product/service to provide more value to our customer?

What organizational changes can we make to reduce overhead and increase productivity?

Is our current company structure the best structure for accomplishing our mission?

Do we need to totally reinvent ourselves just to survive?

In our first example, changing the organization from a non-profit to a for-profit would only stuff the founder’s pockets; however, upon further conversations with their Finance Director, we came to the conclusion that that organizational structure change would change everythingmarketing, branding, funding, employees, legal aspects, and accounting. It would cost more to make that dramatic change than to stay the same. They would most likely loose their funding, their employees, and their entire culture.  They apparently were making a change for the wrong reasons.

Driving Radical Change • McKinsey

In a McKinsey article called Driving Radical Change, they outline how to make dramatic changes in business. It first starts with the aspiration – the goal for the change. Then, the leadership for the change needs to be addressed. Who is doing what? What are the priorities? The next two steps include articulating actionable steps for employees to act on and the direct impact they have on the change. This stage is what really fuels the change. Leadership needs to engage and energize their employees during change (change is scary for most people). Read more about making radical change here.

How to Make Dramatic Changes in Business

Why Make Dramatic Changes in Business

So, why make dramatic changes in business? Sometimes, it just needs to happen. Businesses can get stuck in a “rut” where they continue to practice the way that they have always done without evaluating the changing environment or their team. If your company has not made a change (or at least evaluated current practices) in a decade, then it’s time to look at whether radical change is necessary.

Reasons to change include but are not limited to the following:

  • It’s just not working
  • Competition is growing and taking business away
  • There are legal restrictions
  • The market is shifting
  • Technology shift (this is probably the most common in the last decade)
  • New opportunities identified
  • Customers demand something else

Changes could include the following:

Sustaining Business After Big Changes

So many businesses have made changes due to technology advancements, competition, etc. Barnes & Noble has been through numerous CEOs because they did not continue to press on with their Nook and e-commerce platform. Netflix went through a period of declined stock prices as they pressed on to be a primarily online-streaming platform. Sustaining business after big changes can be difficult, but it all comes down to the leadership. Forbes contributor, Erika Anderson, says, “When CEOs and their teams fail to fully commit to change, change fails.” The entire company needs to commit to making this change successful. If one link in the chain is weak, then the whole project will fall.

Here are a few more notables:

  • Amazon started as an online book sales company; it is now a large distribution and logistics company
  • Western Union started as a telegraph company, then it grew to one of the largest money transfer companies in the world
  • Nokia started selling rubber boots; it is now is a major cell phone manufacturer
  • Shell (the major oil company) started in a small store in England importing and selling shells

There is a great quote that I saw in an article from MONEY… “A successful company is like a giant great white shark. In its prime, it chews up the competition, but if it dares to sit still for too long, it dies.”

Your CEO needs a strong leader – especially a strong financial leader. Learn our 7 Habits of Highly Effective CFOs and become the strong leader your CEO needs.

Supporting Change as the Financial Leader

Change is uncomfortable for everyone because there is uncertainty about the results.

Accounting type people are often prone to being the no-sayers during change… It’s too expensive, too risky, and too advantageous.

When making dramatic changes in your business, it’s important for the financial leader to support the change.

If a certain change will dramatically impact cash flow and profitability, then work with your CEO to figure out what you can do.

Do not just say “no”.

The CEO needs a trusted advisor, a confidant, someone who they can rely on for a more financially sound way of doing something.  In my experience, change has usually been good and for the right reason. To learn other ways to be more effective in your role as the financial leader (and to become a trusted advisor), click here to access our most popular whitepaper – the 7 Habits of Highly Effective CFOs.

Dramatic Changes in Business

Dramatic Changes in Business

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Advantages of Decentralization

See Also:
Organizational Structure
Advantages of Centralization

Advantages of Decentralization

There are several advantages and disadvantages of decentralizing an organization. Decentralizing is optimal when subunit managers and employees have specialized knowledge regarding their particular subunit. Giving subunit managers authority is a good way to train them for future positions in senior management. Empowering employees and managers at lower subunit levels gives the employees greater satisfaction in their work. And finally, decentralized authority and decision rights can free up senior management to focus on more big picture issues as opposed to fussing over details at the subunit level.

On the other hand, decentralization has costs as well. Subunit level managers in a decentralized organizational structure may develop functional myopia, or a narrow focus on their own subunit organization while ignoring broader consequences and implications of business activities. Decentralizing an organization can also result in the duplication of various administrative or service functions at the subunit level that could be performed more efficiently in a centralized manner.

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Advantages of Decentralization

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Advantages of Decentralization

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Advantages and Disadvantages of Centralization

See Also:
Organizational Structure
Advantages of Decentralization

Advantages and Disadvantages of Centralization

Under certain conditions a centralized organizational structure can be advantageous. In a centralized organization structure, the centralized authority may have a better perspective on the big picture of the organization and how the subunits of the organization fit together and this may make centralized authority optimal. If it is a young company and a small company it may be better to have centralized authority. And finally, if the upper management does not have much confidence in the lower level employees’ ability to make and execute decisions properly, then a centralized organization structure would be beneficial.

(NOTE: Want to take your financial leadership to the next level? Download the 7 Habits of Highly Effective CFO’s. It walks you through steps to accelerate your career in becoming a leader in your company. Get it here!)

On the other hand, if the company is large and mature having a centralized organization structure could hinder operational efficiency. Also, if lower-level employees and managers have specific ground-level information that can enhance operational performance, then a centralized organizational structure could be the wrong design. And finally, if using a centralized structure results in senior managers getting tied up in details at the lower level of operations, then perhaps a centralized organizational structure is hindering the company’s performance.

In addition to choosing the right organization structure for your company, learn the 7 Habits of Highly Effective CFOs to find out how you can become a more valuable financial leader.

Advantages and Disadvantages of Centralization

Strategic CFO Lab Member ExtraAccess your Flash Report Execution Plan in SCFO Lab. The step-by-step plan to manage your company before your financial statements are prepared.

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Advantages and Disadvantages of Centralization

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Organizational Structure

See Also:
Organizational Structure: Advantages of Centralization
Organizational Structure: Advantages of Decentralization
Capital Structure Management

Organizational Structure Definition

Organizational structure is the way responsibility, authority, and lines of communication are arranged. It is also how all processes occur in a company. Additionally, this term is commonly referred to as organizational culture.

The most common organizational structure include hierarchy with employees comprising vertical layers of rank where each layer is superior to the layers below and subordinate to the layers above. In addition, most large organizations divide their employees up into subunits called divisions, departments, segments, business units, work units, or groups. The objective is to get employees at all levels and across all subunits working towards the goals of the organization.

Organizational Structure: Models

Models exist on many levels. To simplify the matter, however, they generally fall into two categories: centralized or decentralized. This main theory is studied across the world.

Centralization vs. Decentralization

Organizational structure in business is either centralized or decentralized. Thus, centralization and decentralization are two ends of a spectrum. You can find organizations somewhere along that spectrum. Companies with centralized structure concentrate their authority in upper levels of management. For example, the military has a centralized organization structure. This is because the higher ups order those below them and everybody must follow those orders.

Unlike centralized companies, decentralized companies have less concentrated authority. In a decentralized organization, lower levels in the organizational hierarchy can make decisions. An example of a decentralized organization is a fast-food franchise chain. Each franchised restaurant in the chain is responsible for its own operation. Broadly speaking, companies start out as centralized organizations and then progress towards decentralization as they mature. This structure, horizontal when decentralized, places power in the decision maker on the ground floor.

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Organizational Structure

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Organizational Structure

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