Theory of Constraints: Organizational Structures - One size doesn’t fit all - Part 2

In part 1 of this post, we introduced the theory of constraints to structuring your organization. We left off by asking the question "what do we do now?"

Here are your next steps.

1. Start by establishing a baseline per product line. Go through the exercise of understanding what if each product in your portfolio recieved zero investment. What would it take and cost to sell just what you have? Then how does that baseline change over time if you do invest and you don’t invest? How truly dynamic is your portfolio of products?

2. Next, organize based on what you need not what you want. Be specific by answering these questions with named resources where possible:

  • Who is responsible for creating items (features/functions/advancements) in the product?

  • Who is responsible for managing (balancing/prioritizing) all those “potential” features AND how they relate to the current product features?

  • Who is responsible for managing the total cost (operational cost – everything it takes) of the product line?

  • Who is responsible for determining the timing of the release of new product features?

  • Who is responsible for determine how those features get designed and built?

  • Who is responsible for managing to those constraints (cost, time, scope)?

  • Who is responsible for managing the brand of each product? – does each product have a brand? Should marketing be more aligned with sales? And product marketing be more aligned with product management?

3. This next step is critical in understanding what the parameters / constraints are for each product line, market segment, and business unit. The goal of this step is to determine how you exploit that/those constraints.

4. Finally, identify what your shared services are across the organization and how they can be better leveraged. Are there functions or services that should be better leveraged that just aren't in their current structure? For example, how do you turn your mobile solution from one product into a mobile platform… where other older products can be turned into technologies of today (and tomorrow) more rapidly, instead of dieing on the vine and being too expensive to update individually.

Trust me, there were be plenty of debates on centralization versus decentralization. The trick is "balance". Balance where you centralize vs. where you decentralize. Decentralize where you need direct accountability and authority – Centralize where you need to leverage resources across your business.

In general, you'll get more ownership and accountability (and therefore better employee engagement as well as results) if your primary orientation is by business rather than by functional area. That said, you can’t make the blanket statement that everything should be decentralized either.

You need to determine where decision making authority should occur and at what appropriate level, that would allow them to wield their independence in a useful way, rather than being frustrated about the fact that they are notionally independent but in reality slaves to others’ resource decisions.

So what do you do? Here are some recommendations!

  • Give the product manager/project manager as much accountability and responsibility as possible, including hiring and firing and direct input into performance appraisals of team members.

  • Organize, if possible, around product lines so the various specialties are in the same group or business unit. This will enable the product manager/project manager to hopefully have more accountability and responsibility.

If you want to build a culture of delivery, then give the right resources the right accountability and authority to deliver! Give a more balanced structure with one resource focused on Product Line Management (strategic, marketing, and tactical) and another focused on delivery (program directors).

Listen, your executive leadership needs to make sound financial decisions based on product development throughput, investment (inventory), operating expense, and the ability to understand how each of these factors relates to one another. Help them by organizing based on what your organization needs. Identify and understand your current organizational constraints so that you can exploit those constraints and operate more efficiently and effectively.

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