The structure of your company is a critical piece of your company's success. But according to Jonathan Byrnes, senior lecturer at MIT and author of Islands of Profit in a Sea of Red Ink, too many executives never actually ask the big question:
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"Are you a brewery or are you a plastics company?"
It's a question posed by Jay Lorsch and Paul Lawrence in their 1967 book Organization and Environment. And it revolves around determining whether your company needs a centralized or decentralized organization to really thrive.
At the time, the trend toward mass proliferation of craft breweries hadn't started, so breweries were extremely stable across the entire organization: Demand was stable, processes were stable, and production technology didn't vary. In companies like this, you don't want a lot of "lower management making decisions that could muck up the works," says Byrnes in his latest MDM Webcast, Managing for Profit: How to Ensure Your Profit Initiatives Don't Fall Short (available now on DVD for easy sharing).
On the other hand, businesses such as plastics companies in the 60s or the tech companies of Silicon Valley today, have a very different organization. "Every project is different … and the pace of change is very fast," Byrnes says. For success here, you have to have a highly decentralized management team that is allowed to "form and reform as the need arises."
Deciding where your company falls seems like a simple assessment. "But most companies don't ask this question, and they can fall into a macro business structure without ever looking at it," Byrnes says.
They try to mandate from afar without having the in-person understanding of a rapidly changing environment, or they allow for too much decision-making freedom in an environment where the recipe needs to be exact across locations.
Are you a plastics company or a brewery? Answering that question can help you direct your company toward success.
Order Managing for Profit: How to Ensure Your Profit Initiatives Don't Fall Short, part 4 of the Islands of Profit Webcast series on DVD.
Or save 37% when you order all four parts of the MDM Islands of Profit Webcast Series: Leading, Operating, Selling and Managing for Profit on one DVD at www.mdm.com/islands.