Decentralization and Structure

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Podcast Transcription Implementing Lean Marketing Systems

Decentralization and Structure Guest was Dean Meyer

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Does Decentralization limit Growth?

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Podcast Transcription Implementing Lean Marketing Systems Dean Meyer is one of the original proponents of running sharedservices organizations within companies as businesses within a business, where every managerial group is an entrepreneurship funded to produce products and services for customers.

He has implemented this philosophy in corporate, government, and non-profit organizations through the careful design of culture, organizational structure, and internal market economics.

Dean is the author of seven books, numerous monographs, countless articles, as well as the Full-cost Maturity Model. He invented FullCost, a business and budget planning process based on an internal product/service costing solution. He researched the science of organizational structure, captured in his Structural Cybernetics framework and reorganization process.

And he developed an approach to corporate culture that leads to meaningful change in less than a year. Dean coaches executives on organizational and political issues, and personally facilitates transformation processes.

From a small office in the New England village of Ridgefield, Connecticut, Dean Meyer writes, invents, coaches leaders, and implements organizational transformation -- all based on 30 years of devotion to the business-within-a-business paradigm.

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Podcast Transcription Implementing Lean Marketing Systems Transcription of Podcast Joe Dager: Welcome everyone! This is Joe Dager, the host of the Business901 podcast.

With me, today is Dean Meyer. He is one of the original proponents of running shared services organizations within companies as business within a business, where every managerial group is entrepreneurship funded to produce products and services for customers. Dean is the author of seven books. He invented “Full Cost”, a business and budget planning process based on internal product service costing solutions, and he’s researched the science of organizational structure captured in his structural cybernetics framework and reorganization processes.

His latest book is “Internal Market Economics”, which is one of those books that raise as many questions in my mind as it did answers, and that is meant as a compliment. Dean, I would like to welcome you, and could you start off by giving me the elevator speech about you and your company, NDMA? Dean Meyer: Thanks for having me on your podcast! The elevator speech, well as you pointed out I am a long-time proponent, one of the earliest proponents of funding organizations as a business within a business. What I mean by that is not just that the IT as a whole is a business, but every managerial group, every manager should think like an entrepreneur running a little business within a business. What I do for a living is help executives -- CIOs and their leadership teams, for example, implement that vision systemically. That is through changing the organizational ecosystem if I may, the organizational environment that we all live in. So I work on three things. I work on culture, which is contrary to popular opinion, the easiest thing to fix. Structure, which is a very Does Decentralization limit Growth?

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Podcast Transcription Implementing Lean Marketing Systems mature science -- I get myself into trouble on airplanes sometimes, I’ll be sitting next to a guy, and they find out I’m a student of structure, they say oh let me show you my organization chart! I’ll say well, this guy’s fighting with this guy, this guy’s not making objectives, that guy has ulcers. It’s that predictable! So it’s also a dangerous science because the guy gets all upset, I deny all of that, “Who have you been talking to?” and then they don’t talk to me for the rest of the flight, so I guess that’s okay. Structure is my longest standing area of research. Then most recently, just the last 15 years or so ago, I’ve been studying the application of market economics inside of companies that sort out the resource governance and financial processes. That’s what I do for a living: culture, structure, and the internal economy.

Joe: Now you wrote a book on decentralization. Could you -- I know you have a certain step process for how you look at that and everything -- could you explain the five steps to me, or an overview on it?

Dean: Before we talk about decentralization, let me ask you a question. Joe, why do you think organizations exist at all? Or said another way, why would our IT department of 100 people or 1,000 people or 10,000 people, why would our organization perform any better than an equal number of individuals? Joe do you know the answer to that?

Joe: The collective whole is stronger.

Dean:

Why is that?

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Podcast Transcription Implementing Lean Marketing Systems Joe: Because you’re allowed to specialize and gather knowledge from each other.

Dean: Ah, you’ve been reading ahead! You see, some people might say it gets everybody pointed the same direction, and I come back and say well how about we got 1,000 people all pointed the same direction with a strategic plan or something and all still working individually, it still couldn’t perform. The answer is simple: specialization. You see, as human beings we can only think so many thoughts in a day, we can only read so much, we can only know so much, we have only so many brain cycles. You can use those brain cycles to be the Jack of all trades and master of none, right? Or you can use your brain cycles to know absolutely everything about one subject and nothing about anything else; I call that the nerd because you can’t talk to them. When I speak of a specialist I mean a Tshaped person. One who across the top of the T knows a little bit about everything so as to be able to team, but who brings real depth to one field of study, to a specialty. Now when you combine a bunch of T-shaped people into an organization, you have both breadth and depth.

With specialization, people accumulate more knowledge, they get more experienced at implementing, and they can focus their reading better so the pace of innovation picks up, productivity improves, quality goes up, job stress goes down, conflicts of interest go away, and all of this good stuff comes from specialization. So said another way, an organization of generalists will perform no better than an equal number of individuals. Or, conversely, the more the organization permits specialization, the greater the potential performance of the organization as a whole. Is this common sense?

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Podcast Transcription Implementing Lean Marketing Systems Joe: It is, but doesn’t specialization -- as you specialize you dig a deeper hole and you become more siloed?

Dean: Siloed, we use the word silo to mean organizations that are self-sufficient, and that’s exactly what I want to get to in discussing decentralization. Hold that thought for just a moment. As you become more specialized and better and better at what you do, you become more valuable. You know who makes the money out there in the marketplace; it’s the specialists and not the generalists, right?

Joe: Right.

Dean: But I think what you’re referring to, Joe, is that there is a catch here. You can’t specialize if you can’t team. If I can’t trust you to help me, what am I going to do? I’m going to replicate your skills and do it myself. And there’s exactly where silos come from. If we give up on teamwork, then we would organized in a way that pulls together all the different skills and specialties we need to get a certain job done, a certain process or part of our product line. What we’re doing is taking a specialty and scattering it among silos, reducing our ability to specialize, in order to be less dependent on teamwork. Well, that’s kind of sad. If instead you invest in great teamwork and understanding the customersupplier relationship across all of the boundaries within an IT organization and practicing that -- “Who’s prime? Okay, what subs do you need?” -- I call them walkthroughs, and practicing the processes until everybody gets it, if you invest in teamwork then you can afford a much higher degree of specialization and you don’t build silos. We behave as one organization and the performance of the organization just skyrockets. So now, with that Does Decentralization limit Growth?

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Podcast Transcription Implementing Lean Marketing Systems tradeoff understood, the more you invest in teamwork, the more you can specialize, and the more you specialize the greater the performance, now let’s look at decentralization.

What does decentralization doing? It’s building little pockets of generalists all over the company. No way those guys can perform as well as shared service, because they can’t specialize as much. So why would people do that? Well if they work for me, at least they’ll treat me like a customer. At least I’ll get to control their priorities. At least they’ll understand what’s unique about me instead of that one size fits all stuff. And when you think of it, a good shared service organization, one that’s entrepreneurial and customer focused, addresses all of those concerns. They’re not trying to force one size fits all, they’re customer focused. They’ll pull together consortium where we have shared needs, they’ll sell unique solutions where it’s appropriate. And the internal economy allows each of those business units to control what they buy, so that’s not an issue, they can still control priorities. In other words you can control what you eat without having to own your own grocery store, right? So if you get things right with culture, structure, and internal economy, then shared services works. And that allows a greater degree of specialization and hence performance.

Joe: What does that org structure box look like?

Dean: Okay. Another way to ask that, a more technical way, is “What is the nature of a specialty?” and you see a lot of org charts built around processes and competencies and so on. The process view is not really appropriate because if you build an organization around its processes then you’ve got a scatter of specialty, because many different processes need Does Decentralization limit Growth?

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Podcast Transcription Implementing Lean Marketing Systems the same specialties. So that goes the other way that goes back to the stove pipes. So what makes for a good specialty? And here we turn back to the business within a business paradigm. Instead of roles, responsibilities, competencies, processes, that sort of thing, each box on that org chart should be considered a line of business. We should be specializing in what we sell not what we do. So, for example, the DBMS engineering group sells DBMS engines, sells performance tunings, and sells physical data models, that sort of thing. They have a clear catalogue of products and services. They can do whatever they want, they can be as competent as they want at anything, but they’re bounded in terms of what they sell not what they do.

Joe: So you’re saying our outcomes are the way we’re structured.

Dean: Yes, and specifically outcomes phrased as lines of business within IT. So in “The Building Blocks Approach to Organization Charts”, the little blue book, figure one lists the various lines of business that exist within any organization. For example, we have service bureaus that keep things running. Those guys, they don’t like innovation. They’re cautious, and they have a right to be, because they’re paid to keep things running reliably, inexpensively, efficiently, safely, and securely. They will innovate when it’s read, when it’s time, but with caution. With technologists, that’s the engineers, technologists I call them, completely different culture. They love innovation, they love being out there on the leading edge; can’t run things worth a darn, but they love inventing new stuff. That’s where our applications developers and our infrastructure engineers, two very different kinds of businesses; very different business models, service bureaus vs. technologists. There are a few other lines of business within any organization, IT included. There are coordinators Does Decentralization limit Growth?

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Podcast Transcription Implementing Lean Marketing Systems that bring us together and help us come to consensus. For example, in architecture, an architect should not be a dictator mandating standards and design patterns to others, but rather should build consensus of the appropriate stakeholders on standards, and design patterns, and policies. Same with the security policy, it should be done by consensus, same with business continuity, business strategy, all of those are coordinators that help us in part by helping us come together and come to consensus.

Then like any business within a business, we need sales and marketing -- don’t tell anybody I said that, Joe, because we can’t use those terms outside. I call it consultancy, but it is essentially sales and marketing. This is our account reps, our retail storefront if any, and our marketing which means communications, one to many and many to one. So these are the basic lines of business. There is one other, audit. Audit is in the business of judging others and while that’s a legitimate line of business, we don’t want to mix it up with any other service businesses. You know you can’t say, look I’m from the IRS I’m here to help. So audit should really -- you got to hold at arm’s length. I’m going to hope that most IT departments do not have an audit function within them. They’re not judging clients requests, or judging one another.

The basic four are service bureaus, technologists, coordinators, and consultancy. Those represent specialties, those represent lines of business, and those are the building blocks by which we assemble organization charts.

Joe: When we assemble an organization, we basically look at the outcome of each block? [ Does Decentralization limit Growth?

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Podcast Transcription Implementing Lean Marketing Systems Dean: Yes, and you watch out for combining blocks that really don't’ belong together.

Actually if you look at figure two of the book, you’ll see the four questions that we cask when we’re diagnosing an org chart. This is how I get in so much trouble on airplanes when my seatmate shows me their org chart and I tell them what’s wrong; I think mentally of these four questions.

The first one is gaps. If any of the building blocks -- that is, lines of business within the organization -- are missing, or if any are done part time by a lot of people but nobody’s primary focus, that’s called a gap. And what would you expect? Nobody has time to really study it well, so you expect a lack of excellence. They have higher priorities, so you’d expect unreliable processes. For example if you leave the account rep function for the senior management team to do in their spare time, they’re not going to be studying methods of needs assessments and requirements planning, of strategic benefits measurement, of consortium facilitation, all of the distinct products and services of consultancy, of an account rep function. They don’t have time to study that stuff, they’ve got a business to run. And they’re not out walking the halls, attending the meetings, engaged in the client’s business, as you’d expect of an account rep.

Next question: what happens when you combine building blocks that don’t belong together? Like that poor fellow that was doing both DBMS engineering and DBMS operations, you not only get an impossible job, boss you’ve got me going too many ways at once, but you get conflicts of interest. I want you to keep things stable, keep things running, and oh by the way pioneer the next generation of infrastructure; bad job, bad structure. Here’s another common one: I want you to design applications for a particular Does Decentralization limit Growth?

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Podcast Transcription Implementing Lean Marketing Systems data object. Design all the applications that deal with money, we’ll call them the financial applications. Oh and by the way in your spare time, you are the account rep to the CFO. Here’s another group that designs all the HR applications, that is all the applications that know about people, employees, and oh by the way you’re the account rep to our chief people officer. Well, that’s a conflict of interest. The account rep out there should be business driven and selling the whole store. If what that CFO needs is collaborative tools, or communication tools because they’re working on investor relations, or whatever, they should be selling the whole store in a business-driven, strategy-driven manner. But you know what? Give a kid a hammer, everything looks like a nail. If your other job is apps, everything looks like just another module, and you become technology driven instead of business driven. That’s a conflict of interest. So watch out for combing across building blocks.

Joe: So are you’re saying building blocks in simple terms is like playing checkers against yourself, and sooner or later you have to pick a winner.

Dean: Well, there are no winners and losers here; they all have to work in concert, which is where the teamwork comes in. So the account rep is out there, understanding the business, bottom of the T, the expertise, specialty, is in understanding clients and their business and the linkage between business and IT. So their job is to spot those really strategic opportunities for IT and to build really great relations. They’d bring that business back to the appropriate group within IT. If it’s an existing service, they bring it to the service bureau, if not they bring it to a technologist who offers solutions. Chevrolet, Cadillac, Rolls Royce, what’s the client willing to buy? And once those solutions are Does Decentralization limit Growth?

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Podcast Transcription Implementing Lean Marketing Systems constructed and implemented, then the service bureaus take over and do things like applications hosting and customer service to keep those solutions running. So it should all work in concert if it’s designed well.

Joe: A small company, can they apply this type of thinking? They have to wear a lot of different hats.

Dean: If you’re down to a five person, ten person company, it gets difficult because you don’t want to be one-deep on anything, and so everybody’s got to do a little bit of everything. But even very small companies can apply this; in fact it’s even more important.

When you’re really small, you can’t afford to be inefficient, you’ve got to do the most with the talent you’ve got. So the more you can allow that talent to specialize, the better your performance, and that’s really critical when you’re running such a small shop. Sure, you can back fill one another, but everybody better have a clear focus, and that focus ought to be determined by what business they’re in, not competencies and roles and responsibilities.

Joe: How do you build cross-team functionality between the two? I mean, it’s easy to say but . . .

Dean: Yes, that’s the real work! In fact, in the structural cybernetics process, where we implement this, the organization chart comes together very, very quickly; in just a couple of workshops I can have a whole leadership team at consensus on a clean sheet of paper Does Decentralization limit Growth?

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Podcast Transcription Implementing Lean Marketing Systems design. And then of course, the CIO puts names in the boxes, and we would work with that team to make sure we know how this organization is going to function before we go turning the switch, unlike a lot of restructuring. That’s where the real work begins.

We do what I call walkthroughs. We take a whole series of real-life situations. Here’s a project we’re doing right now: based on this new org chart, who’s the prime? And prime, what subs do you need? And subs, do you need any subs? So you can picture a sort of tree structure fanning out on the flip chart or the screen. That walkthrough is a high level project plan. In fact, they would then map it straight into their project planning system. It defines prime and sub in the language of business, so everybody’s got to understand what business they’re in, and what their catalogue of products and services is. Then we can do the walkthroughs, and that’s what builds the teamwork.

Joe: So when you’re mapping a process, you’re mapping people or roles.

Dean: Yes, groups. This group is prime, this group is sub. We’re not trying to do the PPM resource management job here. We’re just trying to understand how that process works. We’re trying to take our lines of business and mix and match them in just the right way for each unique project or service.

Joe: If I have a value stream and I have a certain value stream where I have a U shaped, let me just explain it as a U shaped office where purchasing, engineering, are all in one cubicle. They can talk to someone when the inbound sale comes. They are all responsible for that value stream. Does the specialty need to be more important to the engineering Does Decentralization limit Growth?

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Podcast Transcription Implementing Lean Marketing Systems staff and hang out with them, or do they need to be more responsible to the value stream?

Dean: If i understand you, if I’m somewhere in that value stream, if I’m in the supplier management area or I’m in the engineering area or I’m in the logistics area, first off as an entrepreneur, I’ve got to put forward and up to date and comprehensive catalogue of products and services, and I’ve got to be able to deliver that with excellence, and I’ve got to be best priced. I’ve got to know what the unit cost, the full cost is of my products and services, and be sure I’m competitive and if I’m not then I should be the first to recommend to bring in a vendor, rather -- to buy instead of make. So then I’m always the best deal in town that way.

Joe: So you’re saying that I need, as an individual or as a group, to give the outcomes that my groups deliver, to other members of the organization to see if they want to buy it.

Dean: You need two things then. First and foremost, you need to know what your catalogue of products and services are the outcomes, and you need to be really good at it and you need to be the best deal. But then you need to do two things: You need to sell it to your customers -- again, sell whether or not money changes hands -- so you have to look down the value stream and understand who the various customers for this are, and you’ve got to build relationship with them and be sure you understand their needs, not only for the purpose of the current project or service but for planning your future catalogue of products and services.

You’ve got to be very customer focused to succeed as an entrepreneur. And you’ve also Does Decentralization limit Growth?

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Podcast Transcription Implementing Lean Marketing Systems got to look back up the value chain, because if you don’t work well with your suppliers, up the value chain, then you can’t succeed. What you don’t want to do is skip levels. You don’t want to go to your customer’s customer. You don’t want to say to your immediate customer, look, I know what’s best for you because I know your customer in turn, because that becomes disempowering of the next group along the value chain. If everybody just manages their suppliers and looks after their immediate internal customers. Then, absolutely the right things will happen.

Joe: Can you sum up the whole decentralization theme for me?

Dean: People decentralize because they want to be treated better, they want either control over priorities and they feel shared services makes them wait in line or beg from a committee and they can’t get what they need. They decentralize because they’re unique and they want things tailored to their unique needs, they want people to understand what’s unique about them and that’s entirely legitimate. They decentralize to be treated well because if you work for me, you’ll be nice to me. Well let’s see, we can control priorities by controlling the checkbook, you don’t need your own grocery store to control what you eat, and that’s internal economy.

A shared service provider should absolutely be willing to tailor custom solutions for people if that’s the right thing to do, and they should be better at it than a scattered little group of generalists. And culture: a shared services group should be customer focused and build great relations out there. You don’t need to work for someone to treat them well. So if we treat internal economy, structure -- if we have an account rep function in the structure his Does Decentralization limit Growth?

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Podcast Transcription Implementing Lean Marketing Systems job is to know those people, if we’re willing to tailor solutions. So if we get culture, structure, and internal economy right, then shared services takes away all the reasons why people decentralize and gives us all the advantages of economy, [--scale 45:43:00], and synergy. I would say if you force consolidation into shared service, and shared service doesn’t get those things right, the pendulum will swing back in three to five years. The forces are there, the business units -- the ones who make money around here -- they will eventually win. So if you do get forced consolidation, you’re in scramble mode, you’ve really got to quickly get it right on culture, structure, and internal economy.

The other approach to consolidation is to earn market share progressively over time. And in doing so, you’re never disempowering the business units, you’re not taking anything away from there, you’re just offering to be their vendor of choice. In that way, you’ll gain market share progressively over time as you earn it, there’s no contention to that, and ultimately that’s the more effective approach. It’s kind of like the tortoise and the hare. If you force consolidation, the hare, it’s quick but you’re now setup to fail if you don’t really get things right quickly. Whereas the tortoises step by step, let’s earn that market share through performance and relationship.

Joe: What is upcoming for you? Do you offer some webinars or other ways for people to learn more?

Dean: I love teaching and I love implementing, so I’m always happy to meet someone on the phone, I do executive coaching, I sometimes come in and do a workshop, typically within an organization or a webinar for an organization, and ultimately for the really great Does Decentralization limit Growth?

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Podcast Transcription Implementing Lean Marketing Systems leaders who are out to build a legacy of a great organization, I work side by side with them on implementing all of these concepts. I’m involved in implementing Full Cost, that’s the planning part of internal market economics, in a couple of organizations right now. I’m working on structure in another organization for the CEO. There’s always a new challenge out there.

Joe: What’s the best way for someone to contact you?

Dean:

I love hearing from people! Email us or give us a call.

Joe: And your website is . . .

Dean: The website is NDMA.com. If you’re interesting in internal market economics go to FullCost.com. In both cases you’ll see a navigation bar on how to contact us. Let me hear from you! I love talking about this stuff, I love hearing what you’re grappling with and helping you figure out what your next steps might be.

Joe: I do have to recommend your “Building Blocks Approach for Organization Charts”. The deeper dive, “The Internal Market Economics” book is excellent, and I went through it thinking, I’m going to browse through this and do an interview. I found myself caught up in it, there’s a lot to digest! I think this is a book that I’m going to have around for a couple months on the side of my desk.

Dean:

Thank you for saying that Joe, I’m honored! Behind these things is what I call Does Decentralization limit Growth?

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Podcast Transcription Implementing Lean Marketing Systems studies. So for a leader who’s actually ready to implement it, you know that little blue book, what is it 110 pages? That gives you the basics of structural cybernetics; the lines of business within organizations, those questions on how to combine the building blocks into a great organization chart, how to build the processes, it gives you an overview. Behind that is an 800 page study that we use for actually implementing the process. “Internal Economics”, what does that come out to, 370 pages, behind that are studies, multiple studies for various modules within that framework for implementation.

When we actually implement transformations, it is a fine process; here’s a workshop, here’s a homework assignment, here’s another workshop; and here’s all the documentation to go with every step of the process. These are tested processes.

Joe: I do appreciate it. The podcast will be available on the Business901 blog site, and the Business901 iTunes store. Thanks again, Dean.

Dean: Thank you Joe, it’s been fun talking to you.

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Podcast Transcription Implementing Lean Marketing Systems Joseph T. Dager Business901 Phone: 260-918-0438 Skype: Biz901 Fax: 260-818-2022 Email: jtdager@business901.com Website: http://www.business901.com Twitter: @business901

Joe Dager is president of Business901, a firm specializing in bringing the continuous improvement process to the sales and marketing arena. He takes his process thinking of over thirty years in marketing within a wide variety of industries and applies it through Lean Marketing and Lean Service Design.

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