Organization design should not be the solution to a problem you don’t yet understand.
For many supply chain executives, redesigning the organizational structure is a tangible strategy for change. But if you don’t know what you are trying to change, then how can you design an organization to achieve that end? Restructuring is disruptive, and great care must be taken to ensure that the change is rooted in sound strategy.
In a recent study of supply chain executives, supervisors and individual contributors (see Figure 1), we found that reporting structure was less of a barrier to success than other concerns. The top responses show us in numbers what we hear in the real world — companies are struggling to figure out their roles and how they work together either through formal process or collaboration. In many cases, restructuring is not the solution to these problems. In many cases it can serve to exacerbate them.
Leading companies are keenly aware of the challenges facing their supply chain in delivering on their business strategy and how their organization structure relates to those challenges.
A Tale of Three (Top 25) Companies
BASF (global chemicals giant and No. 22 on Gartner’s Supply Chain Top 25) is going through a transformation that is shifting how it organizes supply chain. A company once organized as a center-led supply chain is moving toward one that is largely decentralized. It is decentralizing the supply chains into six operating divisions with multiple business units below each of those divisions. At the center they will still maintain core shared services, but those services will be delivered based on the needs of the business rather than pushing their requirements into the business. According to BASF, “With an organizational realignment, BASF is creating the conditions for greater customer proximity, increased competitiveness and more profitable growth.” It sees decentralization and the empowerment of business unit leaders as key to that growth.
Procter & Gamble (global consumer products company and a Supply Chain Top 25 Master) moved from a hybrid/matrix organization to what we would define as a center-led supply chain. The complexity of the corporate heavy hybrid structure led it simplify to “increase focus, agility and accountability.” The teams that once aligned with supply chain at central and regional offices have been realigned to six product-based operating units, each with their own CEO. Those vertical businesses now have responsibility for the customer product design, innovation, marketing and delivery, and are driven to their own profit and loss results. There remains a global organization to provide scaled market services and help strategic business units operate efficiently. According to David Taylor, P&G President and CEO, “We will have a more engaged, agile and accountable organization focused on winning with consumers through superiority, fueled by productivity and operating at the speed of the market.”
Walmart (global retailer and No. 14 on Gartner’s Supply Chain Top 25) recently announced that it is merging its North America retail and online supply chain organizations. The leader of the newly integrated supply chain team will have dual reporting relationships to both the head of retail and the head of the online business to balance goals and objectives. This newly integrated supply chain will make it easier to align people and assets across the two channels. The change is focused around customer experience, with Walmart CEO Doug McMillon acknowledging that, “Our customers want one, seamless Walmart experience.”
What should you learn from these three cases?
No One Model is Correct
Where there is a clear articulation of strategy and its impact on the supply chain, any one of Gartner’s four core organizing models can then be applied (see Figure 2). While it might feel better to assign a maturity level to each model, in fact we see high maturity organizations that work with each of the models we define. Each of these Top 25 companies has chosen a different organizing model, with BASF moving to one that is largely decentralized, P&G moving to center-led and Walmart moving to a centralized model. The models themselves are not inherently good or bad, rather it is the correct application of the model to the business strategy and challenges that makes them work or fail.
Know Your Strategy
In each case there is a clear articulation of the strategy the company is looking to deploy and how its assets might be better aligned to serve that strategy. With that foundation, they looked at how to better utilize the capabilities and assets of the supply chain, which lead to realignment through organization structure and reporting relationships. For example, P&G wants a more agile product and customer strategy while Walmart wants a seamless customer experience. The strategy became the driver for choices on the supply chain organization design.
Focus on Where Integration is Most Important
Integrating across functions and business units is the core challenge for supply chain. The needs of integration, however, will vary depending on strategy, markets served, products and what assets you use to deliver on the strategy. Each of these companies identified where integration was most important (BASF across segments, P&G across products, Walmart across channels) and aligned their supply chain to serve that need. There is not one perfect alignment and each choice has its own trade-offs. For example, while P&G chose product verticals as the integration strategy for the organization, it will need to look at how to integrate at the regional level across product verticals to serve common customers (retailers).
Good organization design can be used to focus your resources, so be sure to understand the strategy of your business and the problems you are looking to solve. Whether you are designing the entire enterprise supply chain or just one functional group, this is critical to the success of your effort.
Ken Chadwick, Research Vice President, Gartner Supply Chain