Research shows that enterprises fail at execution because they go straight to structural reorganization and neglect the most powerful drivers of effectiveness — decision rights and information flow.
Gary Neilson, Karla Martin, Elizabeth Powers, The Secrets to Successful Strategy Execution, Harvard Business Review
The above referenced article (registration and/or subscription may be required) is a great read for any procurement organization trying to guide their company down the execution path, which is critical in a market where stagnation can kill a company. It describes the four fundamental building blocks for successful strategy execution as identified by booz & co. over the past five years. In brief, they are:
- clarify decision rights
how are decisions made, who has the right to make the final decision, and how are they accountable; if people don’t know what decisions they can and can’t make, they’ll sit around waiting for someone else to make a decision rather than taking action themselves
- design information flows
this is usually twice as effective in improving execution than any structural change an organization can make
- align motivators
there should be a strong link between performance and reward, not a weak one; and managers should get rewarded for doing, not spending half of their time justifying their jobs and reporting upward
- make structural changes
only after you’ve figured out who should be responsible for what decisions, how information should flow, and how your managers and employees should get rewarded should you redesign your organizational chart, because only then will you know what structure will truly be more appropriate to your current organization than your current one
The reason why many organizations fail to execute successfully, is they go straight to structural changes because moving lines around the org chart seems the most obvious solution and the changes are visible and concrete. Although they might get lucky sometimes and reap short-term benefits, they’re only addressing the symptoms of their problems, and not the underlying root causes, and it won’t be long until they end up at the same place again — performing poorly with an inefficient organizational structure.
The short story is that people in your organization have to be empowered to do their jobs, and not spend all their time reporting upwards and managing downwards; they need to have the information they need (when they need it) to do their jobs effectively; and the rewards have to be structured in such a way that they are rewarded for making the best decisions for the company as a whole, not just their department or themselves.
This also implies to me that an appropriate center-led purchasing operation can be the most effective one for your organization. How so? In order to operate effectively, a center-led purchasing organization will have to spend a significant amount of time deciding what is purchased in a distributed manner and what is purchased off of central agreements and who gets to make the decision as to whether a new item or product is purchased locally, department-wide, or organization wide; they’ll have to design efficient information flows to make sure that not only do the details of the centrally negotiated contracts and best practices flow out to each team across the globe but that information on actual purchases and newly discovered best practices flows back into the center of excellence; they’ll have to help management align motivators to make sure each team acts in the best interests of the company overall; and they’ll have to lead the identification and implementation of appropriate structural changes across the organization shortly after being formed (and identifying the best structure for the company) and whenever market changes require a reaction on their part.