Scaling to Differentiation

Avoid structural failure by scaling to differentiation

I recently wrote about the importance of “Framework Thinking” as a way to simplify how you look at problems, structures, and processes so I thought I would extend that thinking as an example of how you can think about how you organize your business structure. Scaling an organization requires an evolution of maturity in your structures, your processes, and your approach to priority management. Without recognizing the need for evolution and focusing on building your foundation you can find yourself in crisis mode. Scaling to differentiation is framework approach to avoiding this crisis.

I have written about the importance of foundation as well in the past as it related specifically to building an innovation capability in your organization, but the same concept of foundation applies as you think about your organizational structure.

Functional Organizations

Most leaders and organizations think of their organization in terms of functions, usually articulated on a simple organizational chart.

Traditional Organizational Chart

Each function fits nicely into a box on the grid and each box is filled with a leader with grand titles like CMO, COO, CPO, COO, CHRO, CFO, or CIO. Areas of responsibility are defined by the function of the box and the CEO is tasked with aligning them. Each box and leader has separate accountabilities, interests and priorities. As a result creating alignment around a common vision is incredibly challenging.

While this view is the commonly accepted way to articulate the organizational structure, I argue that it creates silos in behaviour. Each leader has a scope of responsibility and drives execution within that “box”. Their priority is to deliver against the metrics of their role and maximize the functional value of their silo. While the focus lives within the box the organization doesn’t have a common foundation or cross-functional vision of differentiating value. In a traditional organizational chart you can’t see what makes the organization unique.

If we think only of the organizational structure we wind up with teams┬áthat behave in a misaligned fashion. Each team has different processes and standards for their work. Individual teams have their own norms for behaviour, culture, standard operating procedure, and measurement that aren’t aligned to the rest of the organization.

Misaligned Operations View

Foundational Capabilities and Value Creators

Rather than thinking of an organization as a simple organizational chart I consider two new items in the structure: foundational capabilities and differentiating value creators.

The foundational layer provides standards for how the business will operate. It provides the standardized core capabilities to the organization that can be shared across silos. In the foundation we find business management, financials, process management, operational excellence, measurements, human resources, and metrics. The foundation provides a solid base of operations for the organization which allow it to scale and grow in alignment.

This foundation addresses one-half of the scaling equation but it still allows the individual functions to map to their own vision and strategy. Without a common vision and strategy, you will still see an obvious misalignment in the model. You are now in a position to scale your operations, but may continue to struggle in your approach to the market and to what matters to your customers.

Setting the organizational foundation

Differentiating Vision

The final component to be ready to scale and win in the market is a common differentiating vision. This is where you bind the top of the “house” together to create clear alignment from the foundational capabilities to the organization’s vision, strategy, and innovative capabilities. The “roof” of the structure defines the value you will deliver to your customers. Ultimately it is the roof that create values for your company. I call this your “house of differentiation”.

Scaling to differentiation on a strong organizational foundation

With the roof securely mounted you can direct each of the functions toward a common set of outcomes, building from a common set of capabilities. Teams will align their behaviours and culture to the norms and expectations of the organization. Functions will measure themselves according to metrics that drive value out of the system as a whole.

Scaling to Differentiation with The House of Differentiation

Visualizing your organization in a slightly different way you can quickly see how each team supports the development of an orchestrated ecosystem. By creating alignment you are ready to win in your market and with your customers. In my post on Working Smarter, you can learn more about how to reduce fire-fighting and crisis which is most effective with this alignment in place.

Frameworks work. They simplify your thinking. They help you visualize and communicate your story.

Think about your own organization and how it is currently organized and how you tell that story. Is it clear how each business unit supports the organizational value proposition? Can people quickly see how the pieces interact with each other? Could you explain in 5 minutes or less to your board how you have organized your capabilities to win?

Consider using a framework like the “house of differentiation” to visualize your organization and see how your story changes. And let me know how it works for you!

About Tim Empringham, MBA
Tim Empringham is a passionate advocate for Innovation in organizations of all sizes as a mechanism to drive growth, create uncontested market space, create new customer value, and drive efficiency into the internal organization. His focus is on disruption of thinking and markets through integrative thinking, structured Innovation frameworks, and leadership development of Innovation and Change leaders within the organization.

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