The structure distraction.

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When structure becomes a distraction.

Thanks to each of you who takes the time to respond to these newsletters with comments and questions. Not only do they further my thinking, but they also help me understand what topics you'd like more insight into.

I recently got a reply from Sheldon S. asking the following:

What's the impact of an organization's operating model on the success of its strategy?

A good question...

For this discussion, I’m equating operating model to organizational structure—the way a firm organizes its people and work.

I put an organization's structure in the same bucket as something like private equity. Structure isn’t going to be the hero or the villain. It won’t win the game for you—and it won’t lose it either.

To answer Sheldon’s question more directly: Structure and operating model matter. They will either support and further enable a strategy or become detractors of a strategy's ability to take hold in an organization.

If you have a strategy built on collaboration (as we did at Baker Tilly) but your operating model is set up in silos that reward individual contribution to pipeline, your structure is a detractor from your strategy. I’ll get into some other operating model scenarios later…

But let’s back up for a second because in order for me to evaluate the impact of a particular structure on an organization’s success (or not) implementing a strategy, I need to know something critical…

What’s the strategy?

That step—zooming out to define strategy FIRST and then evaluating structure against it—is a step that I see a lot of firm leaders miss.

Why leaders get stuck on structure.

I’ve heard leaders claim, “The reason we’re so successful is because of our structure.”

Hogwash.

Structure is just a way to organize people. It's reporting relationships and accountability charts. Frankly, it looks tidy on paper and makes people feel organized. But structure by itself will never be the sole reason you win or lose.

Structure without strategy is meaningless.

Without a clearly defined and differentiated strategy, plans to execute that strategy, and engines to constantly drive action, your structure won't matter.

People gravitate to structure because it’s definitional and easy. You can see it and sketch it on a whiteboard, and when you do, everyone nods along.

Strategy, on the other hand, is abstract and uncomfortable. It forces choices and trade-offs. So instead of tackling strategy, too many leaders default to defining and celebrating structure.

Now, that's not to say that structure doesn't matter, because it does.

Strategy first, structure second.

You can organize an accounting or professional services firm a dozen different ways:

• By service line (tax, audit, advisory)

• By industry vertical (manufacturing, healthcare, financial services)

• By geography (regional offices, local markets)

• By specialty practice (transaction services, risk, valuation)

Any of those can work—or become a detractor.

So the first question isn’t, What’s the right structure? It’s: What’s your strategy?

As a reminder, strategies should be built outside-in rather than inside-out. You don’t decide what you want to be and then call it your strategy without considering the market and customers you wish to serve.

From there, therefore, your structure should be designed to enable your team to excel and accomplish your strategy.

If you’re industry-based, maybe you need industry teams so tax and audit can collaborate around clients. If you’re service-based, service units may make sense. If geography drives your market, then geographic units might be right.

Structure should be designed to enable strategy. Not the other way around.

I often find that people want to follow a "birds of a feather fly together" type of approach—especially within the accounting profession. Growing up in tax, as an example, I saw that tax people never really wanted to be in industry teams because they didn't want to be associated with the auditors.

I'm not so sure that's the best way of looking at things. At Baker Tilly, in order to address market needs, our go-to-market strategy was built around offering integrated solutions. Since we prioritized strategy and built our structure to support it, we organized cross-functional industry teams to serve our clients.

That structure wasn’t the sole reason for our success, but it was an enabler of our strategy.

Strategy first, structure second.

The traps of structure without strategy.

When firms lead with structure instead of strategy, it can create traps. Here are a couple that come to mind:

• False comfort. Leaders think reorganizing fixes performance. In reality, all they’ve done is reshuffle boxes.

• Silos. Structures built around “birds of a feather” feel comfortable but often discourage collaboration and limit upside.

• Distraction. Leaders will spend months debating reporting lines while competitors focus on the market and gain ground. I’ll add here that I don’t place much emphasis on solid line versus dotted line reporting relationships. As long as strategy and incentives are aligned, having dotted line reporting should work just fine.

These traps waste time and create the illusion of progress while leaving the real issues untouched—namely, the need for a strategy.

So instead of asking, What’s the best structure? ask:

• What’s our strategy?

• Who are we serving?

• How do we differentiate?

• What engines will drive growth?

• What incentives will align behavior to strategy?

Only after answering those questions should you design the structure that enables execution.

The Bottom Line

Going back to Sheldon's original question:

What's the impact of an organization's operating model on the success of its strategy?

It certainly has an impact—but only as an enabler. It’s 20% of the success of an organization, at best. Strategy, market alignment, and execution account for the other 80% and will always be more critical.

Before you start thinking about structure, get clear on your strategy.

Or to put it another way: strategy and alignment eat structure for breakfast.

So the next time someone tells you their firm’s success is because of their structure, call BS. Ask them what their strategy is. If they don't have a clear answer, then their structure becomes irrelevant.

The firms that win are the ones that start with strategy, align their people to it, and only then design the structure that enables them to deliver.

That’s where lasting success comes from.

With intention,
Alan D. Whitman