As managers revamp their organizations for closer alignment with customers, one of the biggest challenges is determining how far and fast to go.
Companies are being pulled by their strategies and pushed by increasingly assertive customers to restructure their organizations around customer groups rather than functions or products.1 Responding to competitive pressures and looking to improve operating profit margins, a growing number of corporate managers are dismantling organizations and cultures that were built on selling particular products and replacing them with new structures designed to be more responsive to customer needs. Intel Corp., which in 2005 announced plans to create five new market units, became one of the more high-profile companies to move in this direction. Rather than designing discrete chips and then assuming customers would adopt them, new units were expected to bundle whatever combinations of processes, chips and software made sense for their own customers.2
The push to restructure around customers is more than the latest management fad. It is supported by success stories at companies including IBM, Cummins India, Fidelity Investments and Imation, and applauded by organizational specialists who have studied the performance of smaller, market-responsive units.3
Companies transitioning from being product-oriented organizations to ones centered on customers progress along a continuum. The first stage involves informal coordination within the company to overcome the familiar deficiencies of product or functional silos. If that is not sufficient, companies often add integrating functions such as key account managers and customer segment task forces. Companies achieve greater levels of structural alignment by reinforcing the customer dimension of the organization matrix with segment managers or customer-based front-end units.4 (See “The Stages of Organizational Alignment.”)