A new look at the org chart

Remember when the big debate was whether an Internet-based business could be housed inside a traditional catalog business or division, whether it had to be a separate entity, whether the same management could run both businesses? Companies now recognize that there are multiple ways to organize a business productively, rather than a one-size-fits-all solution. Some companies, in fact, keep tweaking their org charts in hopes of improving their performance.

You can often discern the roots of a business after just a short exposure to its day-to-day cultural norms — particularly if there’s a high proportion of longtime employees. Company origins often set the expectations for structure because the individuals in authority have a particular historical perspective on how the business works.

Multichannel companies that began as traditional catalog businesses tend to feel different from multichannel merchants that started as retailers and used catalogs primarily to build foot traffic as well as from multichannel businesses that started as online pure-plays and then began to use catalogs to drive business to their Website.

For example, companies that started as brick-and-mortar retailers may still publish skimpy product descriptions or neglect to screen new customer service employees for writing or vocal skills, all because they still hark back to having the customer and the product in the same physical space. One-time pure-plays may still have teeny, relatively hidden groups of service employees who can be reached by phone instead of e-mail or chat. Former catalog-only businesses may be slow to address the competitive pressures applied by Web-based companies that can easily link product recommendations to current shopping behavior or historical transactions.

As the multiple channels become more integrated, though, organization structures tend to be built around a two-part formula: executives’ ideas about the logical flow of authority and accountability plus the availability of employees who appear to fit into the boxes on the chart by virtue of their skill sets, knowledge, and experience.

But in so many cases, those boxes remain unfilled or underfilled because individuals with the desired functional competence, philosophy, or track record can’t be found. Practically speaking, who the people are affects what the boxes are called and what they cover.

There is a solid basis for working from the people, as opposed to working from a pure conceptual design, even if it makes for messy reassignments and transitions. In his popular book, Good to Great: Why Some Companies Make the Leap…and Others Don’t, Jim Collins makes the case: “The right people don’t need to be tightly managed or fired up; they will be self-motivated by the inner drive to produce the best results and to be part of creating something great… If you have the wrong people, it doesn’t matter whether you discover the right direction; you still won’t have a great company.”

Beyond that, if a company has good information flows and solid, trusting relationships, it can overcome problems almost regardless of structure, given sufficient time in which to identify and solve them. Nonetheless, some structural factors can have a positive or negative impact on a variety of performance aspects.

For instance, once you get past the overall orientation of the company, one of the most important considerations is where in the organization chart you place remote sales and customer service.

In most companies there are two primary choices. You can think of them as the hard side and the soft side, or the inward facing and the outward focused — basically it’s a matter of deciding whether finance or marketing calls the shots. The right choice depends on your mission and culture.

Generally speaking, if you locate customer service, whether alone or with the rest of fulfillment operations, somewhere down the finance chain, the big goal posts will be productivity and efficiency, with rigorous attention paid to all costs, return on investment, and the profit-and-loss statement. The time horizon tends to be short term. If the senior service and ops staff does not report directly to the chief financial officer, who may also be a general manager, they’ll often report to an operations head who in turn reports to the CFO.

Conversely, if your service and operations groups report to the marketing and merchandising side of the business, you’re theoretically establishing a focus on the quality of the customer relationship, the effectiveness of the operation, the penetration of the brand, and such metrics as lifetime value (LTV) and revenue. Revenue or LTV targets may still be set by the CFO; there may still be pressure for quarterly, monthly, weekly numbers; but there’s some hope of having at least a seasonal focus, which matches more closely the way the marketplace works. And there’s usually more attention paid to customer satisfaction than to internal processing rules.

One structural assignment isn’t “better” than the other. A focus on the brand and the relationship that is not simultaneously rigorous about procedural accountability and eliminating inefficiencies will tend to lead to costly mistakes that have even more costly resolutions. Conversely, too much attention to efficiency can create barriers to impulse buying and the kind of shopping behavior that results in larger purchases and higher average order values (AOVs).

Metrics can dramatize some of the potential tradeoffs of one structure vs. the other. For instance, a company with a financial orientation might determine success by applying such common measures as call abandonment rate, average length of call, and AOV. The corporate standard might be, say, to staff only as high as necessary to maintain no more than X% abandonment.

But although call abandonment is clearly related to the effectiveness and cost of staffing and does provide some information about customer tolerance for delay, it doesn’t tell you anything about how satisfied — or dissatisfied — customers are. On the other hand, length of call can be a tidy gauge for reducing wasted talk time, and therefore may be a great data point for reviewing rep knowledge, clarity of explanations, and the like — information that pertains to marketing and merchandising as well as to finance. And AOV is a useful tool for tracking the level of selling activity as well as for triggering special offers or extra service programs.

If the customer service division reports to marketing, the call-to-order rate and the percentage of first-call resolution will probably come under consideration as well as the AOV. Both call-to-order and resolution measures help evaluate sales effectiveness as well as various aspects of service infrastructure. A diminishing call-to-order ratio might point to the need for more-persuasive copy, better product selection, or enhanced rep skills in listening and persuasiveness. A higher rate of first-call resolution is usually a marker for increased customer satisfaction or reduced dissatisfaction and might be the result of better service policies, effective knowledge transfer throughout the organization, and greater demonstration of empathy by the reps.

Drilling further down into the operations structure raises other questions. Operations is labor intensive. Should human resources report somewhere within the operations group, or should it be a corporate function? Operations is systems intensive; where is IT best situated?

When the HR function is housed within the operations division, you’ll typically find a high level of knowledgeable attention to the particular needs of each job function and responsiveness to the timing needs for both recruitment and intake. On the other hand, because most operations recruitment is concerned with front-line workers, an HR department that’s located within operations may not have the larger corporate perspective and experience that can be particularly helpful in developing policy or addressing issues of working conditions and benefits. Externally located HR, whether it reports to the CEO or the CFO, is sometimes better placed to provide internal consulting to operations in terms of managerial development, employee relations, organization change, and culture issues.

The smaller the organization, the more likely it is that IT will be housed within operations. If it’s the ops group that generates the majority of demands for systems development, installation, and troubleshooting, placing IT there can be more efficient, though it will still need to provide services to the remainder of the business on an as-needed basis. But in larger, multilayered organizations, IT typically reports directly to the CEO or the CFO because it is mission-critical for so many aspects of the business. In this case, the challenge is to be sure that enough attention and resources are devoted to operational needs for both maintenance and new development.

Another interesting question of org-chart location focuses on who sets service policies. If cost control is the highest priority, then reimbursements and forgiveness gifts may be less generous, leading to increased customer attrition. Service policies that are geared toward ensuring continued relationships and future purchases may actually reduce operations costs by simplifying service processes and reducing the number of calls from dissatisfied customers who keep trying to find a more congenial response.

So the relevance and impact of the structure all comes back to the human factors. What’s the business model and the brand image you’re trying to sustain? And who are the people you have available to help you sustain them?

If the intended meaning and the humans are in sync, structure is less of an issue, because the congruity of the culture will carry the day. If there is conflict, though — if the structure does not correspond to the commitment of value to customers, or if the people involved don’t have the skills or style to support the brand promise — then the structure itself will dictate how the work gets done.

Liz Kislik is a Rockville Centre, NY-based management and customer service consultant.

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