Hierarchical Pipedram

Bob: Well, ladies and gentlemen, welcome to the 1992 Strategic Executive Retreat of Intergroup Holdings Unlimited. It’s my particular pleasure [...]

April 1 1992 by Robert Bittlestone


Bob: Well, ladies and gentlemen, welcome to the 1992 Strategic Executive Retreat of Intergroup Holdings Unlimited. It’s my particular pleasure as chairman and CEO to start off our proceedings today, in the historic surroundings of Wellfleet Conference Centre, Cape Cod, a mere stone’s throw from the landing of the pilgrims and their fortuitous discovery of Indian corn to last them through the first winter. Now there’s a thought for all you strategic planners; was that one of the options on the drawing board back in England, before they embarked on that historic voyage?

Our program this weekend focuses on what I consider to be the most pressing issue facing Intergroup today. Our structure! How do we look? Are we too big? Are we too small? Do we have the right mix of skills? What about the span of control? How much distance separates our office cleaner and myself, hierarchically speaking? You are the chosen few, the Intergroup `A’ team, the creme de la creme of corporate America. Between us, I know that we can thrash this one out and come up with a new face of Intergroup-a smarter, fitter, more agile corporation. That’s why I’ve called this year’s conference: Intergroup 2000: Leaner and Meaner Towards the Next Millennium.

I’d like to call on Harry Junkbond, our Group CFO, to take us through some of his team’s thinking on this vital subject.

Harry: Thank you, Bob. I’m as pleased to be here as the rest of you, and there’s a special reason why. My people have been looking at some of the problems we face in calculating return on equity in each of your divisions, and we think we’ve cracked it. This is how we see the problem. Right now, the Intergroup structure looks like this:

                                  

As you all know, Jack here as SVP-sales currently reports all the revenues, while everyone else is a cost center. Well, I’ve been having a word with our auditors, and we’ve come up with a truly awesome scheme for everyone charging out their time to Jack! This way we can all be profit centers, and enjoy those wonderful expense account means! Here’s how it goes. Take my department, finance, for example. Every time we add up a sales figure, we’ll record how much time we’re taking to do that, and we’ll book one-two-thousandth of the company’s sales revenues as finance department income for every hour we spend. That way, by the end of the year we’ll be showing a profit, just like Jack. And we have a similar scheme for systems. Each time the computer books a transaction, it’ll earn some of that money for itself. So you’ll all be earning a return on equity in 1992.

Bob: Well, Harry, that’s most interesting, and no doubt we can explore it in more depth later today. But Jack, how do things look from sales? Have you come up with any new ideas for us, structurewise?

Jack: Well, Bob, as you know in sales we have five basic regions: Northeast, Atlantic, Midwest, Gulf, and West. I have a manager in charge of each of them. As well as their sales responsibility, they each run their own local marketing, systems, and financial controls, albeit with “dotted line” links to Elaine, Kevin, and Harry. But frankly, I don’t think it’s right for all the revenues to be channeled through me. At times I feel I’m carrying the whole company. I’ve been spending some time out in the field with the front-line sales people, and my message is: We have to get out of the office and motivate all those unsung heroes of Intergroup. I’d like to see each of us around the executive committee table shoulder profit responsibility for one of those regions. Harry should stay independent; we need someone to keep score. It could look like this:

                                   

This way, each of us would have direct profit responsibility for a part of the business, while at the same time we could advise each other when it came to problems based on current specialist expertise. That will help to create the more efficient organization we’re looking for.

Elaine: Hold on! Aren’t you forgetting something, Jack? What about our products? That’s what the customers are buying, and we need to take them deadly seriously. If we don’t have product champions around this table, how can we expect our people lower down the chart to take our brands seriously? Now in marketing I have a brand specialist for each of our product lines, but they complain that their presentations to our meetings keep getting canceled. We’re simply not sufficiently committed to our products as a management team. So I’ve talked to our agency about it, and they’ve given me some great story hoards for a whole new view of Intergroup. My plan is this: We must take personal responsibility for the company’s products. This is how I think we should do it:

                                                                          

This way, there’ll be start-to-finish follow-through on all our product launches; we’ll have quality ratings going the roof; and of course, like Jack said, after the reorganization we can always help each other when it comes to our previous functional specialities.

Olaf Hey, wait a minute, guys! You brought me in last year to head up planning, and what do we get? This looks to me like the same old musical chairs syndrome I saw in the files from your last three reorganizations. Isn’t there somebody out there who’s rather important to us all? Can we hear it for our customers, please? I’ve been looking at who buys our products, not what the products are. We change our product range all the time, but our customers, they’re special. Now I’ve been doing some strategic scenario conceptualizing-nothing heavy fellas, just plain vanilla T-shirts and squishy cushions, underwater group therapy, the normal kind of thing-and I think you’re going to like the elegant simplicity of what’s coming out of the head-banging sessions:

                                    

These are our basic customer groups: stinkies, yuppies, dinkies, wrinklies, and whackos. The stinkies, they’re the under-twos, they use our diaper brands and detergents, while the yuppies, you all know who they are, they buy cosmetics and the wetsuits. The dinkies, that’s the dual-income-no-kids consumers, they buy detergents and cosmetics, while the wrinklies, that’s the age-disadvantaged group, they seem to go for our pet food. They just love it; maybe they eat it themselves. Then there’s the whackos, we call them that because we can’t categorize them really, they just seem to buy anything or nothing at all, almost at random. Some of our studies put them at 85 percent of the customer base, but personally I discount that research. Anyway, this is it in a nutshell. We must take personal executive responsibility for our fundamental customer relationships. As we all know, customer satisfaction helps to drive our business.

Bob: This conference hasn’t really started the way I had in mind. Before we get yet another couple overviews from Gunter and Kevin, I think we’ve got to crack this one. I think we should break up into syndicate groups. Jack, Elaine, and Gunter, you take the Rose Room; Olaf, you go with Kevin and Harry to the Violet Vestibule. I think I’ll take a walk at this point.

An hour or so later:

Bob: Well, folks, have we got a solution?

Olaf Bob, I know you’re just going to love this one:

                                  

With this structure, we each have a basic profit responsibility. At present, we believe that the fundamental focus should be regional, since that’s what’s driving the revenues. Each of us ultimately carries the can for everything that happens in our region. But we also each develop a special capability to advise each other on best practice in the areas listed below our names.

Bob: You must be joking! This structure makes matrix management look simple!

Gunter: I think we can make this one fly, Bob. After all, the regions, the products and the customers aren’t going to disappear just because we find them awkward to manage. We might as well face up to reality.

Bob: You know what’s going to happen if we announce this one? People will be so confused, they’ll be visiting a plant and on the way in they’ll say to the receptionist, If my boss calls, would you please ask him who he is?

Kevin: Well, maybe on alternate Mondays we could run the company by product group, and .. .

Bob: Enough! For pity’s sake let’s break for lunch.

“This structure of concepts is formally called a hierarchy and since ancient times has been a basic structure for all Western knowledge. Kingdoms, empires, churches, and armies have all been structured into hierarchies. Modern businesses are so structured. Tables of contents of reference material are so structured, mechanical assemblies, computer software, all scientific and technical knowledge is so structured-so much so that in some fields such as biology, the hierarchy of phylum-order-class-genus-species is almost an icon.” Robert M. Pirsig, Zen and the Art of Motorcycle Maintenance.


Robert Bittlestone is founder and chief executive of Metapraxis, a London and New York-based consulting group specializing in executive information and strategic control.