Org DNA: Cracking the Code on Execution

By Chris Disher,

David Kletter,

Jon Watts,

and Ashok Divakaran

In a recent on-line survey, Booz Allen Hamilton asked 4,000+ middle managers and executives at U.S. companies, including 300+ in IT organizations, to answer 19 simple questions to help them identify their organization’s unique characteristics. The questions addressed what we believe to be four critical organizational enablers-structure, decision rights, motivators, and information. Combinations of these four elements define an organization’s “DNA” and are, we believe, the key to unlocking an organization’s full potential to rapidly and effectively execute on its strategic objectives. This viewpoint provides an overview of the concepts, key findings, and implications for IT organizations today.

The last couple of years have been trying times for IT organizations. The declining economy has placed unprecedented pressure on companies to cut their G&A costs, with IT feeling perhaps the most heat. In response, it has stretched itself to deliver both traditional supply-side cost reductions, as well as more progressive demand-side cost reductions by collaborating with its business customers to simplify its service offerings and deliver them differently.

In spite of the recent pickup in economic activity, however, most IT organizations continue to have to make do with flat or declining budgets. But as they approach the limits of achievable medium-term cost reductions, their focus is shifting away from efficiency and towards effectiveness, driven by two basic forces:

• Business-driven pressures-from supply chain optimization to regulatory compliance-continue to require IT to be agile and dynamic; however, a sharply reduced resource base demands a new level of athleticism.
• Savvy CIOs are also beginning to realize that as IT’s role gradually transforms from that of a solutions provider to a solutions manager as a result of the unprecedented rise of outsourcing, the IT function itself, as currently defined, could cease to exist-and that it had better organize to deliver its services as effectively as possible to differentiate itself. (Interestingly, even companies that have explored large-scale outsourcing have discovered that an absence of the same organizational capabilities and mechanisms can result in outsourcing deal failures-largely because these very same organizational capabilities are critical for effectively managing an outsourcing relationship.)

In short, the age-old organizational issues of speed and quality of execution, and business alignment, have attained a new significance. It’s now more important than ever not only to do things cheaply, but also do them right-and fast.

While no IT organization may ever truly master the enigma of execution, the most consistently successful ones have been adaptive entities that have become more robust over time. The ability to execute is woven deeply into the core of these organizations. It is embedded in their management processes, relationships, measurements, incentives, and beliefs. Successful companies have discovered that these organizational components are the ultimate determinants of their ability to execute.

In a recent on-line survey, Booz Allen asked 4,000+ middle managers and executives at U.S. companies, including over 300 IT service providers, to answer 19 simple questions (see the Org DNA Profiler^SM assessment tool at www.orgdna.com for list) organized around what we believe to be four critical organizational elements-structure, decision rights, motivators, and information. Combinations of these four elements define an organization’s “DNA” (Exhibit 1) just as the double-stranded molecule is held together by bonds between base pairs of four nucleotides, whose sequence spells out the exact instructions required to create a unique organism.¹

Answers to the 19 questions were fed through proprietary software that assigns respondents to one of seven organization profiles (Exhibit 2). These profiles were developed by Booz Allen based on experience working with hundreds of companies to diagnose and overcome organizational impediments to effective execution.

“Resilient” organizations are clearly optimally placed for effective execution, followed by “Just-in-Time” and, in a distant third place, “Military.” The first four types of organizations are poorly suited for execution. With that said, how do the IT respondents stack up against their non-IT counterparts?

It is clear from the results that IT’s historical reputation of being poor executors is supported by the facts. While the proportion of “Just-in-Time” is the same (8 percent), only 10 percent of IT respondents are in the optimally-placed “Resilient” category, compared to 15 percent for the non-IT population.

The survey also uncovered some interesting relationships between respondent size and executional ability. Organizations’ underlying DNA follows a clear pattern as companies grow. In a nutshell, small companies favor a nimble “Just-in-Time” model. As companies get bigger, they deemphasize nimbleness and tend to migrate towards the more mature “Resilient” group. But the trend is reversed beyond a certain point: for very large companies (>$10BN), the number of “Resilient” profiles is dramatically smaller than in any of the other revenue groups. Another striking point is that far fewer (10.5 percent) IT respondents than their non-IT counterparts in very large companies qualify as “Resilient,” while far more fall under the “Overmanaged,” “Fits-and-Starts,” and “Passive-Aggressive” categories (Exhibit 4).

These findings are confirmed by our own work with very large companies. Our experience has shown that as businesses grow more intricate and pass a particular size threshold, both systems and organizational complexity tend to grow exponentially. This is partially driven by the histories of such very large companies, many of whom have grown through acquisitions that have complicated the IT resource base and organization-but who have not taken corrective action as they went along. As this organizational and systems complexity grows, decision-making authority also tends to get increasingly dispersed, resulting in growing inertia, and exacerbating the problem.

The “sweet spot” for executional capabilities, therefore, would appear to lie in mid-market and large companies that have had the time and means to invest in achieving a certain maturity in their processes, but have not yet acquired the dampening structural complexities of very large organizations. These findings beg the question of precisely what the organizational DNA capabilities of the top performers are. These are briefly discussed below.

Strong IT-Business Alignment: As IT continues its evolution from being viewed as a passive cost center to a proactive business partner, the issue of alignment is becoming ever more critical. Top performers ensure that IT is “wired in” at senior-most levels to understand business imperatives; a dedicated customer relationship/account management function exists to ensure ongoing alignment with customer priorities; and there is a clear delineation of IT vs. business roles (for example, ensuring that for a business-driven IT investment, ownership of the cost side resides with IT, while that of the benefits side resides explicitly with the business.)

Clear Governance Structure: Governance includes not only “people” elements (for example, ensuring that distinct bodies are responsible for different levels of decision making; that the right people are assigned to each; and that they have crystal-clear accountabilities and decision rights), but also the right processes for governing decision making (such as clear, tailored principles and processes for identifying, segmenting, prioritizing, and funding initiatives, and for conflict resolution). These capabilities are perhaps the biggest contributor to driving faster, better-informed decision making and benefits realization.

Performance Management Architecture: IT is in the odd situation of being the support function that collects the largest number of performance metrics as well as being the one that internal customers are typically least pleased with. Performance metrics can drive alignment and effectiveness at two levels. First, making the IT organization accountable to metrics that explicitly link to business objectives forces business alignment beyond the one-time annual strategy/planning cycle. But this by itself is insufficient: personnel incentives also need to be tied to these macro-level metrics to ensure that every ounce of the IT organization’s energy is focused on meeting business needs rapidly, at the right service levels and lowest cost.

Many IT organizations have implemented elements of these critical DNA capabilities but continue to be weak executors. The reason for this is that any one, or two, of the above are insufficient: all three need to simultaneously exist, and be comprehensively implemented, to enable peak effectiveness. And their importance applies not just to insourced service providers, but also to organizations that are exploring large-scale outsourcing. Not having the right DNA capabilities is a recipe for mismanagement and probable collapse of an outsourcing relationship.

Re-configuring the DNA of an organization is not an easy task; it requires the delicate rewiring of the intertwined four bases-structure, decision rights, motivators, and information. But the first step in fixing problems is to identify and isolate them. DNA testing can be as valuable to corporate health as it has become to human healthcare. But generating a profile is only an exercise designed to focus managers on the root causes of their organizational disconnects and execution challenges. It is up to management to turn these findings into sustainable solutions-and, ultimately, into substantial benefits for the business.

For more information on the Org DNA Profiler^SM assessment tool, visit www.orgdna.com.

¹ See Neilson, G., Pasternak, B. and Mendes, D. The Four Bases of Organizational DNA