“Billionaire hedge fund manager Nelson Peltz calls P&G a suffocating bureaucracy” run the summer headlines – with Peltz blaming P&G’s matrix structure for its current woes and launching a proxy shareholder fight.
However as we’ve said many times here before, it is not the matrix structure that is the problem it is the ways of working adopted within that structure. As Peltz rightly acknowledges, the challenge for P&G is to update their culture.
A key component of the required culture change in most matrix organizations is to disentangle and decentralize decision making as much as possible – as we discussed in a recent blog. In their June 2017 report McKinsey deep dive into this issue, arguing that complex organizations like P&G need to consciously consider what type of decisions are being made at different levels, and therefore the best way to tackle them.
Here’s our summary of McKinsey’s latest ABCD categorization of decisions:
- Ad hoc decisions – unfamiliar, infrequent and lower risk decisions • Not likely to cause great ambiguity or complexity so just manage as efficiently as possible as they arise.
- Big bet decisions – infrequent, high risk decisions such as major investments • Appoint an executive sponsor who ensures that a clear problem statement, recommendation, NPV, risks and alternatives are presented • Break down into smaller decisions AND make sure you’re clear what else will be affected (systemic view) • Use a standard decision-making approach to avoid bias (e.g. checklists, devil’s advocates, competing analytic teams) • Adopt fast-but-good decision making, committing to the end result • Develop tracking and feedback mechanisms to judge the success of decisions and refine the process
- Cross-cutting decisions – frequent, high risk decisions requiring collaboration across functions • Avoid trying to simplify to one single decision owned by one ‘D’ • Instead map out each decision-making process, defining roles and decision rights along each step, whilst keeping it as simple as possible • Work through a set of real-life scenarios to ‘run water through the pipes’ and modify if it leaks • Establish a limited number of overarching governance/ decision-making bodies – allowing them to make decisions outside of standard meeting times and focus on accelerating action
- Delegated decisions – frequent but low risk decisions that should be delegated to the front line • Challenge every manager to delegate more decisions – suggest they list out the top 20 regularly occurring decisions and delegate any that are reversible, where someone in the team is capable of handling it and can be held accountable • Reduce overlap of decision rights • Set clear escalation thresholds • Encourage ownership -push back decisions that get escalated that could be dealt with lower down and coach/ support if a bad call is made rather than wading in and taking control • Where possible, move routine decisions to smart algorithms powered by AI and overseen by individuals
Bureaucracy starts to suffocate complex organizations when decisions are miscategorized (or not consciously categorized at all) and so an inappropriate process is used. For example, treating frequent, low risk decisions as either Big Bets or Cross-cutting decisions and so unnecessarily getting lots of people involved.
As McKinsey argues, the ultimate solution is for the organization to become much flatter so that there are less levels of hierarchy available to involve – as demonstrated successfully by high-techs such as Google and Spotify, but also more traditional firms like ING.
Building on this Bain & Co. advocate removing as many unnecessary ‘nodes’ as possible – that is ‘intersections in the matrix organization where an executive or manager sits, where decisions are made or where financial reporting takes place.’ It’s easy for nodes to accumulate unchecked – but this slows down decision making and focuses energy inwards rather than towards the customer. Indeed analysing growth performance of over 3,000 large listed companies in 43 advanced and developing economies over a 10 year period, Bain found that only 11% were able to create sustained value (as measured by achieving more than two times a country’s GDP growth). 66% stall, fail or get bought. And in 85% of those that are no longer value creators, CEOs blamed internal factors such as too much complexity.
In our experience it is also important in complex organisations to clarify decision rights and who needs to be involved – otherwise everyone gets involved in everything and decision making becomes slow and cumbersome.
So make sure you’re in the 11% that make it big and keep growing by disentangling your decision making and allowing your matrix to breathe.