Organizational Effectiveness - Petrochemicals
Situation
A commodity petrochemicals (olefins, aromatics and surfactants) manufacturer struggled to manage activities and resources across functions and operations. Plant managers competed for manufacturing and engineering resources. Sales and Operations fought over access to the assets. Executives hoped they would make it through each month without another crisis that would jeopardize the company's fragile financial situation. Results included missed production targets, high maintenance costs and low asset effectiveness. Several of the large assets performed in the 3rd or 4th quartile on several standard industry metrics. Routine issues bubbled up to the plant managers for resolution, and in this highly cyclical business, cash in the bank continued to dwindle every month. Something had to give.
Observations
The client decided to conduct an assessment of the organization to identify improvement opportunities. The assessment reviewed the 1,450 person organizational structure, levels, spans of control, organizational fragmentation, and clarity of roles and responsibilities. The assessment confirmed that misalignment and a lack of clarity around structures, people and responsibilities was hindering organizational performance. The assessment identified specific improvement areas and developed a business case that quantified the improvement potential based on the existing organization and our experience helping clients address similar challenges. There was a $30 million benefit from restructuring the organization.
Actions
A team of client executives assembled to review the organizational assessment results and develop a vision for the new organization. The team produced a clear and concise vision – generate cash at market troughs – and from this developed the organizational design principles that would guide the design of the new organization. A design team developed a new organizational structure, roles and responsibilities. While the existing organization had four managerial levels and a hodge-podge of titles, the new one had two levels, and all positions were titled either Manager or Team Leader. Against a target from the assessment of reducing headcount by 250 positions, the design team developed a focused and lean organizational structure with clear accountabilities and reporting lines, and 310 fewer positions. Each position had clearly defined responsibilities and specific performance metrics for which they were to be held accountable.
Results
There was a mix of excitement and apprehension in the auditorium for the announcement of the new organization. Each member of the new leadership team introduced their managers and team leaders, and laid out their vision for their new organizational unit. There was a sense that the company had "gotten it right" with the new leadership team, all experienced, capable business leaders, but more importantly, all team players. While it took several months to get through all of the transition issues, the organization was well on its way to a step-change performance improvement. Within one year from the start of the assessment, the company was operating at a sustainable run rate $45 million below the original cost base. The CEO later remarked that the organizational restructuring had "saved the company."
