Organization structure

Why reducing corporate overhead costs is not a ‘Get Out of Jail Free card’

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It is tempting for CEOs to try to appease their shareholders by reducing corporate overhead costs. It seems to be the corporate equivalent of a ‘Get Out of Jail Free card’ in Monopoly: it is free and can get a CEO out of a tricky situation.

The reason is that everyone loves the notion of lowering corporate overhead costs, and especially reducing the number of people in corporate roles.

Whereas the supervisory board occasionally might call for caution, you will never hear shareholders or analysts complain and Business Unit leaders usually love the perspective of lower corporate charges and more independence. Most often, corporate functions cannot count on a lot of sympathy from the rest of the workforce either. They are seen as overpaid ‘bureaucrats’, ‘paper pushers’, and ‘PowerPoint wizards’ in ‘back-office’ roles.

Reducing overhead is also not very difficult. Usually, there are plenty of young runners-up in large organizations dying to prove themselves to corporate leaders. If not, consulting firms are happy to line up for beauty parades to show off their capabilities in this area.

It is also not that hard – at least, I have never seen a corporate cost savings initiative not achieving its short-term financial objectives.

So eliminating or reducing these corporate functions is a great idea, right?

Unfortunately, it depends…

Eliminating or reducing corporate functions poses risks for CEOs in three areas:

  • Compliance
  • Shareholder activism
  • Boardroom dynamics
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‘Understanding organizations…Finally’ – An interview with Interview with Henry Mintzberg

Dirk Verburg1 Comment

‘We live in a world of organizations – and we do not understand them’

This is one of the statements Henry Mintzberg, one of the leading thinkers in the field of Management, made when I interviewed him for my Leadership 2.0 Podcast about his latest book ‘Understanding Organizations…Finally’.

During our conversation, we discussed the following topics:

0️⃣1️⃣ The importance for organizations to get their structure ‘right’
0️⃣2️⃣ The evolvement of Henry’s thinking about organizations
0️⃣3️⃣ ‘Every (organization) form contains the seeds of its own destruction’
0️⃣4️⃣ ‘Emergent structures’ versus large-scale reorganizations
0️⃣5️⃣ The fit between the leader and the structure of the organization
0️⃣6️⃣ The structures of Apple and Tesla and the personalities of their founders
0️⃣7️⃣ The complementary role of conflict and culture in organizations
0️⃣8️⃣ The relationship between the structure and the culture of an organization
0️⃣9️⃣ The gap between formulators and implementers of corporate strategies
1️⃣0️⃣ The interest in structuring organizations in academia and business

You can watch or listen to this podcast episode on:

▶ YouTube https://youtu.be/sDWnSgQNmKs

▶ Apple Podcasts https://podcasts.apple.com/ch/podcast/henry-mintzberg-understanding-organizations-finally/id1511327057?i=1000656746374

▶ Spotify https://open.spotify.com/episode/0npqef0iZdAvrOeTiRLyfV?si=VIJT0CjrRF6Zhm6379JIHg

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The four key questions every business leader needs to answer about AI

Dirk VerburgLeave a comment

Karl Marx famously said, ‘A specter is haunting Europe—the specter of Communism’. Nowadays we can say ‘A specter is haunting the business world – the specter of AI’.

Everyone seems to be riding on the AI bandwagon nowadays, and, as a result, many business leaders are suffering from corporate FOMO.

One thing is clear though, all business leaders need to reflect on the impact AI will have on their organizations. Too many organizations have disappeared because of technological disruptions, including the likes of Kodak, Polaroid, DEC, Motorola, Blackberry, SUN Microsystems, and Blockbuster, to name a few.

Of course, it is tempting to have an intellectual debate about which technologies are disruptive and which ones are not.  This is especially the case if technologies are built on other technologies (which is almost often the case). Without the transistor, the modern computer would not have existed, does that mean that microchips are not disruptive?

For this reason, I like this definition in Investopedia:

A disruptive technology is an innovation that significantly alters the way that consumers, industries, or businesses operate. A disruptive technology sweeps away the systems or habits it replaces because it has attributes that are recognizably superior.

Based on this definition, I think AI definitely qualifies as a disruptive technology.

When it comes to dealing with disruptive technologies, business leaders need to ask themselves four questions:

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How to make a flying start in 2024 with your regional leadership team!

Dirk VerburgLeave a comment

The vast majority of global companies have regional leadership teams. These teams are often uncomfortably situated between the corporate executive team, and their own national (sales) organizations(s).

They usually have a tough job.

Typical challenges for regional leadership teams

Regional leadership teams often find themselves being caught in a sandwich.

On the one hand, they are being kept responsible for realizing the revenue and profit targets for their geographic area (’their’ business), whilst also ensuring ‘compliance’ in all relevant areas.

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Organization structures matter: how much ambiguity costs can your business afford?

Dirk VerburgLeave a comment

Everyone who ever worked in a large organization, can probably relate to at least one of the following examples of conflicts that regularly occur in organizations:

  • A sales leader wants to close a deal with a low margin to meet her targets and to safeguard the relationship with the customer. The product manager does not want to sign off on the deal, because she wants to protect the margin of the product in the longer term
  • A business leader wants to hire a star performer working for another company, and is prepared to pay her more than the maximum of the corporate salary band for these types of roles. The HR Business Partner tries to prevent this because he does not want to create a precedent that can create upward pressure on the salary costs of the company
  • The head of a shared service department wants to hire an independent contractor for a project for USD 1.200 a day. The Purchasing department forces him to work with a consultant from a well-established firm on the preferred supplier list, for a fee rate that is 3 times as high as the one of the independent contractor

These, and other types of conflicts, seem to be an inevitable part of life in large organizations. The question is: why we have those types of conflicts, and if and how we can prevent them?

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