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Does Decentralization limit Growth?


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In a recent podcast, Does Decentralization limit Growth?, with Dean Meyers one of the original proponents of running shared-services organizations within companies as businesses within a business, we discussed the topic of Decentralization. Along with many other things, Dean has written seven books to include, The Building Blocks Approach to Organization Charts and Decentralization: Fantasies, Failings, and Fundamentals. This is a transcript of our podcast.

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Does Decentralization limit Growth?

  1. 1. Business901 Podcast TranscriptionImplementing Lean Marketing SystemsDoes Decentralization limit Growth?Copyright Business901Decentralization and StructureGuest was Dean MeyerSponsored byRelated Podcast:Does Decentralization limit Growth?
  2. 2. Business901 Podcast TranscriptionImplementing Lean Marketing SystemsDoes Decentralization limit Growth?Copyright Business901Dean Meyer is one of the originalproponents of running shared-servicesorganizations within companies asbusinesses within a business, whereevery managerial group is anentrepreneurship funded to produceproducts and services for customers.He has implemented this philosophy incorporate, government, and non-profitorganizations through the carefuldesign of culture, organizationalstructure, and internal market economics.Dean is the author of seven books, numerous monographs,countless articles, as well as the Full-cost Maturity Model. Heinvented FullCost, a business and budget planning process basedon an internal product/service costing solution. He researched thescience of organizational structure, captured in his StructuralCybernetics framework and reorganization process. And hedeveloped an approach to corporate culture that leads tomeaningful change in less than a year. Dean coaches executiveson organizational and political issues, and personally facilitatestransformation processes.From a small office in the New England village of Ridgefield,Connecticut, Dean Meyer writes, invents, coaches leaders, andimplements organizational transformation -- all based on 30years of devotion to the business-within-a-business paradigm.
  3. 3. Business901 Podcast TranscriptionImplementing Lean Marketing SystemsDoes Decentralization limit Growth?Copyright Business901Transcription of PodcastJoe Dager: Welcome everyone! This is Joe Dager, the host ofthe Business901 podcast. With me, today is Dean Meyer. He isone of the original proponents of running shared servicesorganizations within companies as business within a business,where every managerial group is entrepreneurship funded toproduce products and services for customers. Dean is the authorof seven books. He invented “Full Cost”, a business and budgetplanning process based on internal product service costingsolutions, and he’s researched the science of organizationalstructure captured in his structural cybernetics framework andreorganization processes.His latest book is “Internal Market Economics”, which is one ofthose books that raise as many questions in my mind as it didanswers, and that is meant as a compliment. Dean, I would liketo welcome you, and could you start off by giving me the elevatorspeech about you and your company, NDMA?Dean Meyer: Thanks for having me on your podcast! Theelevator speech, well as you pointed out I am a long-timeproponent, one of the earliest proponents of fundingorganizations as a business within a business. What I mean bythat is not just that the IT as a whole is a business, but everymanagerial group, every manager should think like anentrepreneur running a little business within a business. What Ido for a living is help executives -- CIOs and their leadershipteams, for example, implement that vision systemically. That isthrough changing the organizational ecosystem if I may, theorganizational environment that we all live in. So I work on threethings. I work on culture, which is contrary to popular opinion,the easiest thing to fix. Structure, which is a very mature science-- I get myself into trouble on airplanes sometimes, I’ll be sittingnext to a guy, and they find out I’m a student of structure, they
  4. 4. Business901 Podcast TranscriptionImplementing Lean Marketing SystemsDoes Decentralization limit Growth?Copyright Business901say oh let me show you my organization chart! I’ll say well, thisguy’s fighting with this guy, this guy’s not making objectives, thatguy has ulcers. It’s that predictable! So it’s also a dangerousscience because the guy gets all upset, I deny all of that, “Whohave you been talking to?” and then they don’t talk to me for therest of the flight, so I guess that’s okay. Structure is my longeststanding area of research. Then most recently, just the last 15years or so ago, I’ve been studying the application of marketeconomics inside of companies that sort out the resourcegovernance and financial processes. That’s what I do for a living:culture, structure, and the internal economy.Joe: Now you wrote a book on decentralization. Could you -- Iknow you have a certain step process for how you look at thatand everything -- could you explain the five steps to me, or anoverview on it?Dean: Before we talk about decentralization, let me ask you aquestion. Joe, why do you think organizations exist at all? Or saidanother way, why would our IT department of 100 people or1,000 people or 10,000 people, why would our organizationperform any better than an equal number of individuals? Joe doyou know the answer to that?Joe: The collective whole is stronger.Dean: Why is that?Joe: Because you’re allowed to specialize and gather knowledgefrom each other.Dean: Ah, you’ve been reading ahead! You see, some peoplemight say it gets everybody pointed the same direction, and Icome back and say well how about we got 1,000 people allpointed the same direction with a strategic plan or something and
  5. 5. Business901 Podcast TranscriptionImplementing Lean Marketing SystemsDoes Decentralization limit Growth?Copyright Business901all still working individually, it still couldn’t perform. The answer issimple: specialization. You see, as human beings we can onlythink so many thoughts in a day, we can only read so much, wecan only know so much, we have only so many brain cycles. Youcan use those brain cycles to be the Jack of all trades and masterof none, right? Or you can use your brain cycles to knowabsolutely everything about one subject and nothing aboutanything else; I call that the nerd because you can’t talk to them.When I speak of a specialist I mean a T-shaped person. One whoacross the top of the T knows a little bit about everything so as tobe able to team, but who brings real depth to one field of study,to a specialty. Now when you combine a bunch of T-shapedpeople into an organization, you have both breadth and depth.With specialization, people accumulate more knowledge, they getmore experienced at implementing, and they can focus theirreading better so the pace of innovation picks up, productivityimproves, quality goes up, job stress goes down, conflicts ofinterest go away, and all of this good stuff comes fromspecialization. So said another way, an organization of generalistswill perform no better than an equal number of individuals. Or,conversely, the more the organization permits specialization, thegreater the potential performance of the organization as a whole.Is this common sense?Joe: It is, but doesn’t specialization -- as you specialize you dig adeeper hole and you become more siloed?Dean: Siloed, we use the word silo to mean organizations thatare self-sufficient, and that’s exactly what I want to get to indiscussing decentralization. Hold that thought for just a moment.As you become more specialized and better and better at whatyou do, you become more valuable. You know who makes themoney out there in the marketplace; it’s the specialists and notthe generalists, right?
  6. 6. Business901 Podcast TranscriptionImplementing Lean Marketing SystemsDoes Decentralization limit Growth?Copyright Business901Joe: Right.Dean: But I think what you’re referring to, Joe, is that there isa catch here. You can’t specialize if you can’t team. If I can’t trustyou to help me, what am I going to do? I’m going to replicateyour skills and do it myself. And there’s exactly where silos comefrom. If we give up on teamwork, then we would organized in away that pulls together all the different skills and specialties weneed to get a certain job done, a certain process or part of ourproduct line. What we’re doing is taking a specialty and scatteringit among silos, reducing our ability to specialize, in order to beless dependent on teamwork. Well, that’s kind of sad. If insteadyou invest in great teamwork and understanding the customer-supplier relationship across all of the boundaries within an ITorganization and practicing that -- “Who’s prime? Okay, whatsubs do you need?” -- I call them walkthroughs, and practicingthe processes until everybody gets it, if you invest in teamworkthen you can afford a much higher degree of specialization andyou don’t build silos. We behave as one organization and theperformance of the organization just skyrockets. So now, withthat tradeoff understood, the more you invest in teamwork, themore you can specialize, and the more you specialize the greaterthe performance, now let’s look at decentralization.What does decentralization doing? It’s building little pockets ofgeneralists all over the company. No way those guys can performas well as shared service, because they can’t specialize as much.So why would people do that? Well if they work for me, at leastthey’ll treat me like a customer. At least I’ll get to control theirpriorities. At least they’ll understand what’s unique about meinstead of that one size fits all stuff. And when you think of it, agood shared service organization, one that’s entrepreneurial andcustomer focused, addresses all of those concerns. They’re nottrying to force one size fits all, they’re customer focused. They’ll
  7. 7. Business901 Podcast TranscriptionImplementing Lean Marketing SystemsDoes Decentralization limit Growth?Copyright Business901pull together consortium where we have shared needs, they’ll sellunique solutions where it’s appropriate. And the internal economyallows each of those business units to control what they buy, sothat’s not an issue, they can still control priorities. In other wordsyou can control what you eat without having to own your owngrocery store, right? So if you get things right with culture,structure, and internal economy, then shared services works. Andthat allows a greater degree of specialization and henceperformance.Joe: What does that org structure box look like?Dean: Okay. Another way to ask that, a more technical way,is “What is the nature of a specialty?” and you see a lot of orgcharts built around processes and competencies and so on. Theprocess view is not really appropriate because if you build anorganization around its processes then you’ve got a scatter ofspecialty, because many different processes need the samespecialties. So that goes the other way that goes back to thestove pipes. So what makes for a good specialty? And here weturn back to the business within a business paradigm. Instead ofroles, responsibilities, competencies, processes, that sort of thing,each box on that org chart should be considered a line ofbusiness. We should be specializing in what we sell not what wedo. So, for example, the DBMS engineering group sells DBMSengines, sells performance tunings, and sells physical datamodels, that sort of thing. They have a clear catalogue ofproducts and services. They can do whatever they want, they canbe as competent as they want at anything, but they’re boundedin terms of what they sell not what they do.Joe: So you’re saying our outcomes are the way we’re structured.Dean: Yes, and specifically outcomes phrased as lines ofbusiness within IT. So in “The Building Blocks Approach to
  8. 8. Business901 Podcast TranscriptionImplementing Lean Marketing SystemsDoes Decentralization limit Growth?Copyright Business901Organization Charts”, the little blue book, figure one lists thevarious lines of business that exist within any organization. Forexample, we have service bureaus that keep things running.Those guys, they don’t like innovation. They’re cautious, and theyhave a right to be, because they’re paid to keep things runningreliably, inexpensively, efficiently, safely, and securely. They willinnovate when it’s read, when it’s time, but with caution. Withtechnologists, that’s the engineers, technologists I call them,completely different culture. They love innovation, they lovebeing out there on the leading edge; can’t run things worth adarn, but they love inventing new stuff. That’s where ourapplications developers and our infrastructure engineers, twovery different kinds of businesses; very different businessmodels, service bureaus vs. technologists. There are a few otherlines of business within any organization, IT included. There arecoordinators that bring us together and help us come toconsensus. For example, in architecture, an architect should notbe a dictator mandating standards and design patterns to others,but rather should build consensus of the appropriate stakeholderson standards, and design patterns, and policies. Same with thesecurity policy, it should be done by consensus, same withbusiness continuity, business strategy, all of those arecoordinators that help us in part by helping us come together andcome to consensus.Then like any business within a business, we need sales andmarketing -- don’t tell anybody I said that, Joe, because we can’tuse those terms outside. I call it consultancy, but it is essentiallysales and marketing. This is our account reps, our retailstorefront if any, and our marketing which meanscommunications, one to many and many to one. So these are thebasic lines of business. There is one other, audit. Audit is in thebusiness of judging others and while that’s a legitimate line ofbusiness, we don’t want to mix it up with any other servicebusinesses. You know you can’t say, look I’m from the IRS I’m
  9. 9. Business901 Podcast TranscriptionImplementing Lean Marketing SystemsDoes Decentralization limit Growth?Copyright Business901here to help. So audit should really -- you got to hold at arm’slength. I’m going to hope that most IT departments do not havean audit function within them. They’re not judging clientsrequests, or judging one another.The basic four are service bureaus, technologists, coordinators,and consultancy. Those represent specialties, those representlines of business, and those are the building blocks by which weassemble organization charts.Joe: When we assemble an organization, we basically look at theoutcome of each block?[Dean: Yes, and you watch out for combining blocks that reallydont’ belong together. Actually if you look at figure two of thebook, you’ll see the four questions that we cask when we’rediagnosing an org chart. This is how I get in so much trouble onairplanes when my seatmate shows me their org chart and I tellthem what’s wrong; I think mentally of these four questions.The first one is gaps. If any of the building blocks -- that is, linesof business within the organization -- are missing, or if any aredone part time by a lot of people but nobody’s primary focus,that’s called a gap. And what would you expect? Nobody has timeto really study it well, so you expect a lack of excellence. Theyhave higher priorities, so you’d expect unreliable processes. Forexample if you leave the account rep function for the seniormanagement team to do in their spare time, they’re not going tobe studying methods of needs assessments and requirementsplanning, of strategic benefits measurement, of consortiumfacilitation, all of the distinct products and services ofconsultancy, of an account rep function. They don’t have time tostudy that stuff, they’ve got a business to run. And they’re notout walking the halls, attending the meetings, engaged in theclient’s business, as you’d expect of an account rep.
  10. 10. Business901 Podcast TranscriptionImplementing Lean Marketing SystemsDoes Decentralization limit Growth?Copyright Business901Next question: what happens when you combine building blocksthat don’t belong together? Like that poor fellow that was doingboth DBMS engineering and DBMS operations, you not only getan impossible job, boss you’ve got me going too many ways atonce, but you get conflicts of interest. I want you to keep thingsstable, keep things running, and oh by the way pioneer the nextgeneration of infrastructure; bad job, bad structure. Here’sanother common one: I want you to design applications for aparticular data object. Design all the applications that deal withmoney, we’ll call them the financial applications. Oh and by theway in your spare time, you are the account rep to the CFO.Here’s another group that designs all the HR applications, that isall the applications that know about people, employees, and ohby the way you’re the account rep to our chief people officer.Well, that’s a conflict of interest. The account rep out thereshould be business driven and selling the whole store. If whatthat CFO needs is collaborative tools, or communication toolsbecause they’re working on investor relations, or whatever, theyshould be selling the whole store in a business-driven, strategy-driven manner. But you know what? Give a kid a hammer,everything looks like a nail. If your other job is apps, everythinglooks like just another module, and you become technologydriven instead of business driven. That’s a conflict of interest. Sowatch out for combing across building blocks.Joe: So are you’re saying building blocks in simple terms is likeplaying checkers against yourself, and sooner or later you have topick a winner.Dean: Well, there are no winners and losers here; they allhave to work in concert, which is where the teamwork comes in.So the account rep is out there, understanding the business,bottom of the T, the expertise, specialty, is in understandingclients and their business and the linkage between business and
  11. 11. Business901 Podcast TranscriptionImplementing Lean Marketing SystemsDoes Decentralization limit Growth?Copyright Business901IT. So their job is to spot those really strategic opportunities forIT and to build really great relations. They’d bring that businessback to the appropriate group within IT. If it’s an existing service,they bring it to the service bureau, if not they bring it to atechnologist who offers solutions. Chevrolet, Cadillac, RollsRoyce, what’s the client willing to buy? And once those solutionsare constructed and implemented, then the service bureaus takeover and do things like applications hosting and customer serviceto keep those solutions running. So it should all work in concert ifit’s designed well.Joe: A small company, can they apply this type of thinking? Theyhave to wear a lot of different hats.Dean: If you’re down to a five person, ten person company, itgets difficult because you don’t want to be one-deep on anything,and so everybody’s got to do a little bit of everything. But evenvery small companies can apply this; in fact it’s even moreimportant.When you’re really small, you can’t afford to be inefficient, you’vegot to do the most with the talent you’ve got. So the more youcan allow that talent to specialize, the better your performance,and that’s really critical when you’re running such a small shop.Sure, you can back fill one another, but everybody better have aclear focus, and that focus ought to be determined by whatbusiness they’re in, not competencies and roles andresponsibilities.Joe: How do you build cross-team functionality between the two?I mean, it’s easy to say but . . .Dean: Yes, that’s the real work! In fact, in the structuralcybernetics process, where we implement this, the organizationchart comes together very, very quickly; in just a couple of
  12. 12. Business901 Podcast TranscriptionImplementing Lean Marketing SystemsDoes Decentralization limit Growth?Copyright Business901workshops I can have a whole leadership team at consensus on aclean sheet of paper design. And then of course, the CIO putsnames in the boxes, and we would work with that team to makesure we know how this organization is going to function before wego turning the switch, unlike a lot of restructuring. That’s wherethe real work begins.We do what I call walkthroughs. We take a whole series of real-life situations. Here’s a project we’re doing right now: based onthis new org chart, who’s the prime? And prime, what subs doyou need? And subs, do you need any subs? So you can picture asort of tree structure fanning out on the flip chart or the screen.That walkthrough is a high level project plan. In fact, they wouldthen map it straight into their project planning system. It definesprime and sub in the language of business, so everybody’s got tounderstand what business they’re in, and what their catalogue ofproducts and services is. Then we can do the walkthroughs, andthat’s what builds the teamwork.Joe: So when you’re mapping a process, you’re mapping peopleor roles.Dean: Yes, groups. This group is prime, this group is sub.We’re not trying to do the PPM resource management job here.We’re just trying to understand how that process works. We’retrying to take our lines of business and mix and match them injust the right way for each unique project or service.Joe: If I have a value stream and I have a certain value streamwhere I have a U shaped, let me just explain it as a U shapedoffice where purchasing, engineering, are all in one cubicle. Theycan talk to someone when the inbound sale comes. They are allresponsible for that value stream. Does the specialty need to bemore important to the engineering staff and hang out with them,or do they need to be more responsible to the value stream?
  13. 13. Business901 Podcast TranscriptionImplementing Lean Marketing SystemsDoes Decentralization limit Growth?Copyright Business901Dean: If i understand you, if I’m somewhere in that valuestream, if I’m in the supplier management area or I’m in theengineering area or I’m in the logistics area, first off as anentrepreneur, I’ve got to put forward and up to date andcomprehensive catalogue of products and services, and I’ve gotto be able to deliver that with excellence, and I’ve got to be bestpriced. I’ve got to know what the unit cost, the full cost is of myproducts and services, and be sure I’m competitive and if I’m notthen I should be the first to recommend to bring in a vendor,rather -- to buy instead of make. So then I’m always the bestdeal in town that way.Joe: So you’re saying that I need, as an individual or as a group,to give the outcomes that my groups deliver, to other membersof the organization to see if they want to buy it.Dean: You need two things then. First and foremost, you needto know what your catalogue of products and services are theoutcomes, and you need to be really good at it and you need tobe the best deal. But then you need to do two things: You needto sell it to your customers -- again, sell whether or not moneychanges hands -- so you have to look down the value stream andunderstand who the various customers for this are, and you’vegot to build relationship with them and be sure you understandtheir needs, not only for the purpose of the current project orservice but for planning your future catalogue of products andservices.You’ve got to be very customer focused to succeed as anentrepreneur. And you’ve also got to look back up the valuechain, because if you don’t work well with your suppliers, up thevalue chain, then you can’t succeed. What you don’t want to do isskip levels. You don’t want to go to your customer’s customer.You don’t want to say to your immediate customer, look, I know
  14. 14. Business901 Podcast TranscriptionImplementing Lean Marketing SystemsDoes Decentralization limit Growth?Copyright Business901what’s best for you because I know your customer in turn,because that becomes disempowering of the next group along thevalue chain. If everybody just manages their suppliers and looksafter their immediate internal customers. Then, absolutely theright things will happen.Joe: Can you sum up the whole decentralization theme for me?Dean: People decentralize because they want to be treatedbetter, they want either control over priorities and they feelshared services makes them wait in line or beg from a committeeand they can’t get what they need. They decentralize becausethey’re unique and they want things tailored to their uniqueneeds, they want people to understand what’s unique about themand that’s entirely legitimate. They decentralize to be treated wellbecause if you work for me, you’ll be nice to me. Well let’s see,we can control priorities by controlling the checkbook, you don’tneed your own grocery store to control what you eat, and that’sinternal economy.A shared service provider should absolutely be willing to tailorcustom solutions for people if that’s the right thing to do, andthey should be better at it than a scattered little group ofgeneralists. And culture: a shared services group should becustomer focused and build great relations out there. You don’tneed to work for someone to treat them well. So if we treatinternal economy, structure -- if we have an account rep functionin the structure his job is to know those people, if we’re willing totailor solutions. So if we get culture, structure, and internaleconomy right, then shared services takes away all the reasonswhy people decentralize and gives us all the advantages ofeconomy, [--scale 45:43:00], and synergy. I would say if youforce consolidation into shared service, and shared servicedoesn’t get those things right, the pendulum will swing back inthree to five years. The forces are there, the business units -- the
  15. 15. Business901 Podcast TranscriptionImplementing Lean Marketing SystemsDoes Decentralization limit Growth?Copyright Business901ones who make money around here -- they will eventually win.So if you do get forced consolidation, you’re in scramble mode,you’ve really got to quickly get it right on culture, structure, andinternal economy.The other approach to consolidation is to earn market shareprogressively over time. And in doing so, you’re neverdisempowering the business units, you’re not taking anythingaway from there, you’re just offering to be their vendor of choice.In that way, you’ll gain market share progressively over time asyou earn it, there’s no contention to that, and ultimately that’sthe more effective approach. It’s kind of like the tortoise and thehare. If you force consolidation, the hare, it’s quick but you’renow setup to fail if you don’t really get things right quickly.Whereas the tortoises step by step, let’s earn that market sharethrough performance and relationship.Joe: What is upcoming for you? Do you offer some webinars orother ways for people to learn more?Dean: I love teaching and I love implementing, so I’m alwayshappy to meet someone on the phone, I do executive coaching, Isometimes come in and do a workshop, typically within anorganization or a webinar for an organization, and ultimately forthe really great leaders who are out to build a legacy of a greatorganization, I work side by side with them on implementing allof these concepts. I’m involved in implementing Full Cost, that’sthe planning part of internal market economics, in a couple oforganizations right now. I’m working on structure in anotherorganization for the CEO. There’s always a new challenge outthere.Joe: What’s the best way for someone to contact you?Dean: I love hearing from people! Email us or give us a call.
  16. 16. Business901 Podcast TranscriptionImplementing Lean Marketing SystemsDoes Decentralization limit Growth?Copyright Business901Joe: And your website is . . .Dean: The website is If you’re interesting ininternal market economics go to In both casesyou’ll see a navigation bar on how to contact us. Let me hearfrom you! I love talking about this stuff, I love hearing whatyou’re grappling with and helping you figure out what your nextsteps might be.Joe: I do have to recommend your “Building Blocks Approach forOrganization Charts”. The deeper dive, “The Internal MarketEconomics” book is excellent, and I went through it thinking, I’mgoing to browse through this and do an interview. I found myselfcaught up in it, there’s a lot to digest! I think this is a book thatI’m going to have around for a couple months on the side of mydesk.Dean: Thank you for saying that Joe, I’m honored! Behindthese things is what I call studies. So for a leader who’s actuallyready to implement it, you know that little blue book, what is it110 pages? That gives you the basics of structural cybernetics;the lines of business within organizations, those questions on howto combine the building blocks into a great organization chart,how to build the processes, it gives you an overview. Behind thatis an 800 page study that we use for actually implementing theprocess. “Internal Economics”, what does that come out to, 370pages, behind that are studies, multiple studies for variousmodules within that framework for implementation.When we actually implement transformations, it is a fine process;here’s a workshop, here’s a homework assignment, here’sanother workshop; and here’s all the documentation to go withevery step of the process. These are tested processes.
  17. 17. Business901 Podcast TranscriptionImplementing Lean Marketing SystemsDoes Decentralization limit Growth?Copyright Business901Joe: I do appreciate it. The podcast will be available on theBusiness901 blog site, and the Business901 iTunes store. Thanksagain, Dean.Dean: Thank you Joe, it’s been fun talking to you.Joseph T. DagerBusiness901Phone: 260-918-0438Skype: Biz901Fax: 260-818-2022Email: jtdager@business901.comWebsite: http://www.business901.comTwitter: @business901Joe Dager is president of Business901, a firm specializing inbringing the continuous improvement process to the sales andmarketing arena. He takes his process thinking of over thirtyyears in marketing within a wide variety of industries and appliesit through Lean Marketing and Lean Service Design.Visit the Lean Marketing Lab: Being part of this community willallow you to interact with like-minded individuals andorganizations, purchase related tools, use some free ones andreceive feedback from your peers.