The Delusion of Single-Point Accountability

Wishing for Something Doesn’t Mean You Will Get It

Source: Cartoon Stock.com

Last week, a client asked me a question about organizational structure, and I wrote him a short memo in response. That made me realize that I should write more on one aspect of my note, which concerned single-point accountability. To that end, I have dedicated my 40th Year II Playing to Win/Practitioner Insights (PTW/PI) piece to The Delusion of Single-Point Accountability: Wishing for Something Doesn’t Mean You Will Get It. You can find the previous 92 PTW/PI here.

A Bit of Background

Executives tend to love the idea of single-point accountability (SPA). I understand the attraction. The concept needs no explanation to be clear: I have accountability for this; I will make the decisions on this; I will stand by those decisions; and I will take full responsibility for the outcomes. SPA is so widely revered that it is easy to find lists of numerous books extolling its virtues, even New York Times bestsellers.

This devotion to SPA has great personal meaning for me because I was once fired for daring to question its invocation. A new CEO, who just took over at a long-time client, informed me that he planned to announce that the massive reorganization over which he would soon preside would be great for the company because it would shift the organization from diffuse accountability across product business units, geographies, and functions to clear and unambiguous SPA. I pointed out to him that the reorganization did no such thing and advised him that it would be a serious mistake to portray the reorganization as having SPA as a central feature. In response, he fired me and banned any further work at the company — and boldly trumpeted the new SPA organizational structure to the whole company. It was a bummer for me to be fired, and not that long thereafter, the CEO found out how that felt when he was fired by the board as confusion over the new organization helped to produce dreadful operating results.

While it would be lovely if creating SPA were so straightforward and easy, it just isn’t. It is a bit like Sandra Bullock and her fellow beauty pageant contestants in the farcical rom-com Miss Congeniality: they uniformly want world peace! But despite the enthusiasm and warm feelings, that doesn’t seem to be arriving anytime soon.

The Structural Choice

In a company that has one product in one geography, it is straightforward to have SPA. The head of the business — the CEO — has single point accountability for the whole organization. The head of manufacturing has single point accountability for manufacturing. The head of marketing has single point accountability for marketing. Go-to-market for go-to-market and so on…

But the simplicity flies out the window the moment the company enters another product category. Inevitably, the head of the formerly singular product will not like having to share (say) manufacturing attention with the head of the new product category. And the head of the new product category will feel that manufacturing is paying too much attention to the old category — and so on. Everybody — i.e., the heads of the products and of all the functions — will start complaining vociferously about not having SPA — like in the good ole days!

At that point, the CEO faces a fundamental organizational choice.

One choice is to maintain SPA by creating a mini functional organization under each product group. Essentially that restores SPA by way of creating multiple largely standalone companies. While this choice has the virtue of maintaining SPA, by doing so, it precludes exploiting economies of scale/scope across product lines.

Because there are inevitable costs — both corporate overhead costs and the costs of inflexibility — imposed on the newly created business units and, to protect SPA, no attempt to garner benefits, it is hard to argue that the business units actually belong together. There are costs but no benefits.

This is the critique which private equity (PE) routinely levels — and acts upon. If companies don’t do it themselves, PE forces them to split up if there are no economies of scale/scope from being together. Just ask General Electric, Toshiba, Thyssenkrupp, etc. Forcing a breakup of this sort is one of the most profitable lines of business for PE, and they are getting more aggressive by the month.

It must be pointed out that it isn’t impossible to maintain a diversified portfolio in which SPA is enabled by keeping the businesses independent of one another with no attempt to share. There is one prominent American example: Berkshire Hathaway, with its miniscule 25-person/10,000-square-foot corporate office (I was once invited by the Oracle of Omaha to visit him there and it really is tiny) that manages 60 businesses with $280 billion in revenues. Nobody is trying to break up Berkshire, worth over $650 billion at last check, because it is so phenomenally successful.

However, it may be the proverbial exception that proves the rule. As long as Warren Buffett and Charlie Munger make ridiculous returns investing the float of GEICO, General Re and the rest of its insurance company portfolio, Berkshire can do pretty much anything it pleases.

For the rest of companies, if they don’t try to add value across a diversified portfolio, PE will be lurking and preparing to pounce at the first sign of weakness. I would argue that the smarter thing to do as part of this choice is instead of ceding control to PE, to maintain control of the agenda by splitting yourself up the way you want, when you want, and having the individual businesses enjoy the simplicity of SPA.

The other choice is to maintain a single organization in which you try to achieve benefits of scale/scope across businesses. That could be better rates on advertising by pooling spend (like P&G), more cost-effective R&D through coordinating across businesses (like Boeing), more effective distribution by running multiple businesses through the same distribution (like Frito Lay), a value-adding shared management system (like Danaher), or more cost-effective procurement (like most big companies). These sorts of initiatives have the prospect of making each of the businesses stronger and more competitive — but they sacrifice SPA.

To achieve these benefits, interdependencies across product leaders and functional leaders need to be embraced. Plus, in the modern world, competitiveness often requires participating in multiple geographies to achieve international/global scale. That adds further complexity to the organizational picture with coordination required between product, functional and geographic leaders.

This reality requires an explicit theory of how the interdependencies will create value — how being in multiple products and multiple geographies will enable you to serve customers better and/or lower your costs. And capturing that value will require collaboration, not SPA. If executives refuse to collaborate, they won’t reap the value. And the lose-lose box lurks. If they don’t collaborate, costs will be incurred with no corresponding value captured.

In my experience, that is a big challenge. Executives incessantly complain that their company has chosen a matrix organizational structure, and that undermines the SPA for which they long. No, their company didn’t choose a matrix organization; their business is a matrix. Executives can try to act like it isn’t in delusional pursuit of SPA, but that will just undermine collaboration.

The problem is that collaboration is a learned skill. It is not easy to make a choice that requires taking into account multiple perspectives. I even wrote my first book, The Responsibility Virus, about the collaboration challenge. If you try to deny collaboration’s utility, you will never practice and learn it. And on top of that challenge, strategy is becoming the lost art, and the choice of operating as an interdependent business requires a clear strategy by which you will produce the target benefits.

Net it is a tricky choice. On one hand is the choice to preserve SPA. Within that choice, there are three sub-options. First, stick to operating in one product category. Second, split into independent companies as soon as you expand to multiple product categories, which returns you to the first sub-option. Three, operate as a pure conglomerate and take the chance of being forcibly split up by PE.

On the other hand, you can choose to do the challenging work of developing a strategy for and building the collaboration capabilities necessary to take advantage of participating in multiple products and geographies.

Practitioner Insights

SPA is an outcome with tight contextual constraints. It is easy in companies that sell one product in one region. But successful companies almost inevitably add product categories and geographies. When they do, they can hang onto SPA, but the cost of that is to forego any advantage of scale and scope made possible by their growth. The inherent inefficiency of that outcome exposes the company to both PE and competitive threats — from both simpler narrower competitors and from broad-based competitors who successfully exploit their own scale and scope. In my experience, it is better to split your company into independent, tightly focused companies than to endure the worst of all worlds.

The better alternative is to do the work of creating a strategy for benefiting competitively from product and international expansion and building the collaboration capabilities and supporting management systems. That requires accepting not denying that your business is a matrix. And that means understanding the key interdependencies that must be exploited in your strategy for advantage and structuring those interdependencies to work.

This is not an easy outcome. Collaboration takes work. And it won’t happen if you tolerate whining and complaining about the lack of single-point accountability.

BTW, we are gearing up for the second running of Creating Your Winning Strategy, a live online course that I will be teaching for a second time. The first, in February 2022, was a smash hit. The second will be in October 2022. If you enjoy the Playing to Win/Practitioner Insights series, you will love Creating Your Winning Strategy. You can sign up for it here.

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