Adding Focus and Profitability with A New Business Unit
When markets change, customer focus changes and/or your value proposition changes, then maybe it’s time to look at your organisation structure to realign it or adapt to these changes, improve efficiency, and drive future growth. Creating a new business unit is one way this can be achieved.
Here are some ideas to consider from a recent project with a value added distributor that had taken on a new portfolio of vendors. However, the same conceptual ideas could be applied to a solution provider or MSP building out a new practice such as Cloud, Security, AI etc.
Why A Restructure?
Firstly, it is important to take a step back to remember the fundamentals of organisational structuring. The organisation’s design and GTM is the way the company can best align its resources to match the needs of the targeted customers to create a profitable niche with a competitive advantage.
Therefore, if for whatever reason the organisation changes it’s chosen target customer, or customer preferences have evolved over time, but the organisation is still arranged, compensated, measured and organised around the old set of requirements, then something is going to suffer because of this mismatch. It will most likely be customer satisfaction often leading to a drop in corporate profitability. Ie customers are buying fewer existing products, or not being attracted to newer offerings, or worse even defecting to competitors.
Unfortunately, sometimes we see “organisational scope creep” where a combination of all the above happens slowly but continuously over time, until a sudden corporate realisation of this misalignment. By then it often becomes a costly survival necessity, rather than a measured and calculated corporate evolution with significantly less brand damage, customer or employee impact.
Business Unit Realignment to Meet Customer Expectations
First and foremost, it is all about aligning the organisation with the chosen customers that best match the ongoing corporate strategy. There is no magic “one size fits all” structure or strategy, but one of the most common organisational structures is the focused business unit approach.
Top Tips For Success
- Define the Purpose and Objectives:
- Market Opportunity: Is there a new market you want to tap into or a growing customer segment you want to serve? Have customer preferences changed over time?
- Strategic Alignment: How does this new unit align with your overall business strategy and long-term goals?
- Value Creation: What unique value will this unit bring to the organisation?
- Customer Value Proposition: From the customer’s perspective what’s in it for them? Do you have a compelling enhanced value proposition?
- Choose the Right Structure:
- Standalone Unit: Operate as a separate entity with its own P&L, resources and decision making power.
- Integrated Unit: Closely connected to existing departments, sharing resources and collaborating on projects, but with a differing customer focus.
- Hybrid Model: Combine elements of both standalone and integrated structures to balance autonomy, synergy and especially financial resources with a single P&L.
- Key Factors To Consider:
- Leadership: Appoint a BU leader with the vision and experience to guide the new unit but understands how the business unit fits within the bigger organisational picture.
- Talent: Attract and retain skilled employees with the expertise needed for success.
- Resources: Allocate adequate budget, technology, and infrastructure to support the unit’s operations, including BU specific marketing.
- Processes: Establish clear workflows, communication channels, and performance metrics.
- Compensation: The reason for a business unit is there should be a difference of customer focus, sales goals and probably marketing. Therefore, design the compensation system to support and align to the business unit goals of point 1.
- Culture: Create a suitable matching culture for the business unit but still foster a positive and collaborative work environment that aligns with the greater organisation’s values.
- Plan for Implementation:
- Phased Approach: Introduce the new unit gradually, but to a specific timeline, to minimise disruption and allow for internal and external adjustments.
- Communication: Clearly communicate the reasons for the restructure and the role of the new unit to all stakeholders, both internal and external such as key customers.
- Training: Provide training to employees on new processes, systems, and responsibilities.
- Monitoring: Track the performance of the new unit against new KPIs, adjust as needed.
- Potential Benefits:
- Increased Focus: Allows for specialised attention to a specific market or product line.
- Improved Efficiency: Streamlines operations and decision making within the unit.
- Enhanced Innovation: Fosters a culture of creativity and entrepreneurship.
- Greater Agility: Enables faster response to specific market changes and the targeted customer needs.
- Potential Challenges:
- Integration: Difficulty coordinating with existing departments and sharing resources.
- Conflict: Potential for competition or disagreements between the BU and the organisation.
- Cost: Investment required for staffing, infrastructure, and operations.
- Resistance: Employees may be resistant to change or concerned about job security.
- Examples of Business Unit Focus:
- Product Line: Focused on developing, marketing, and selling a specific product or service.
- Customer Segment: Cater to the unique needs of a particular customer group.
- Geographic Region: Expand into a new market or serve a specific geographic area.
- Innovation Lab: Explore new technologies and develop innovative products or services.
Remember that organisational restructuring is a complex and sometimes messy process. It’s essential to develop a suitable change management plan and consider all internal and external aspects before implementing the required changes. Strategy and Change can help by addressing the potential benefits and challenges, so you can increase the likelihood of a successful restructure and the effective addition of a business unit.
