Only 11% of large companies are sustained value creators. Size is not the issue—it's the complexity that creeps in over time. Ron Kermisch, a partner in the Organization practice, discusses how incumbent companies can simplify their organizations to get back their mojo and return to the path of sustainable growth.
Read the transcript below.
RON KERMISCH: All large companies start with a founder's mentality. They have a maniacal focus on the front line. They have self-directed employees who serve customers. And they abhor bureaucracy.
But as they grow, they lose many of these characteristics. Only 11% of the large companies are sustained value creators. And fully two-thirds will stall, fail, or be acquired over the coming years.
But growth itself and size aren't the problem. It's the complexity that creeps in over time. And we've all seen it. Layers and ranks and titles proliferate. You talk to people in the company, and they have no direct connection to what's happening on the front line. And management spends all their time focused on process rather than on customers.
But companies can get their mojo back, and it begins with organizational simplification. One large financial services company went through exactly this. They went through a traumatic restructuring during the financial crisis and came out of it just as complex, if not more so, on the other side of it. It was taking them three to four days to serve commercial customers with products that their competitors could deliver in a matter of hours.
And so they embarked on an organizational simplification effort. They dramatically reduced the number of layers in the company. They pushed decision-making closer to customers. And they cut out 95% of matrix reporting relationships throughout the organization.
And the result was a company that was much more nimble and served customers much more effectively than they had in the past. And as an added benefit, they dropped $500 million straight to the bottom line in a year as a result of the simplification. And so companies can get their mojo back, but that requires that they have big, bold goals for what they want to achieve, that they bake organizational simplification into the company as a way of life, and that they take the time to celebrate their successes along the way.