Competing on the Edge: Redesigning organizations through patching

The case of Microsoft Multimedia

The changing role of executives in today’s organizations

Patching: Re-stitching business portfolios in dynamic markets

Changing roles of executives?

Senior executives: Focus on organizational context rather than strategic

contentProtect and reinforce organizational norms and

values Middle level executives

Coaching, supporting, and developing business unitsDelegate responsibility

First-line ExecutivesDeveloping/motivating teams and building unit’s

capabilitiesDeveloping unit level strategies

Patching: Restitching business portfolios in dynamic markets

Patching is the organizational process by which corporate executives routinely re-map business units to take advantage of the changing markets.

Patching can take the form of adding, splitting, transferring, exiting, or combining modules of businesses.

Patching focuses on the organizational processes more than strategic market positioning

Reorganization Versus Patching

Regularly track fine-grained metrics on modular businesses

Fine grained metrics only for infrequent reorganization

Metrics

Roughly right realignments over time

Optimal restructuring at a specific point in time

Precision

Get business focus and size right

Get business focus right

Driver of change

Change process is routine and follows patching moves

Every change is uniqueFormalization

OngoingRareFrequency

Mostly small, and a few are large

MajorScale of change

Proactive weaponDefensive reactionRole of change

Company wide parityNot relevantCompensation

Reorganization Patching

Is it time to repatch?

Are your businesses ignoring significant opportunities? Or, are they converging onto the same new market opportunities?

Has growth stalled in your current patching arrangement? (average selling price, market share, gross margin, or the rate of new customer acquisition are falling)

Are you imposing one management structure on your businesses that evolve at different rates?

Are your customers segmenting your products or services differently than your organization is currently structured?

Are better performing competitors patched differently?

What is your organizational risk exposure?

Pressure for performance

Pressure for performance

Rewards forentrepreneurialrisk taking

Rewards forentrepreneurialrisk taking

Transactioncomplexity andvelocity

Transactioncomplexity andvelocity

Rate of expansion

Rate of expansion

Inexperience ofkey employees

Inexperience ofkey employees

Executiveresistance forbad news

Executiveresistance forbad news

Level of internalcompetition

Level of internalcompetition

Gaps in diagnosticperformancemeasurements

Gaps in diagnosticperformancemeasurements

Degree of decentralizeddecision making

Degree of decentralizeddecision making

+ + =

+ + =

Growth

Culture

Information Management

Scale: 1 through 5

+ + =

Score

The risk exposure score: It is used to gauge a company’s likelihood of being surprised by organizational breakdowns that can threaten its performance

9-20: Too much safety?The firm can be safe from unexpected errors or events but the management should question whether or not they are risk averse.

21-34: The caution zoneThe management should be alert for high scores in any two of the three risk dimensions.

35-45: The danger zoneIt is now time to develop strategies for managing risk through organizational processes.

Source: “How risky is your company?” by Robert Simons. Harvard Business Review, May-June 1999, pp:.85-94.

The levers of risk management

Belief systems: Have senior managers communicated the core values and ideals of the business in a way that people understand and embrace?

Managerial discipline: Have the middle managers clearly set the standards and provide discipline?

Diagnostic control systems: Are diagnostic measures adequate at monitoring critical performance variables?

Interactive control systems: Are control systems designed to stimulate learning?