Does Decentralization limit Growth?

Business901 Podcast Transcription
Implementing Lean Marketing Systems
Does Decentralization limit Growth?
Copyright Business901
Decentralization and Structure
Guest was Dean Meyer
Sponsored by
Related Podcast:

Dean Meyer is one of the original
proponents of running shared-services
organizations within companies as
businesses within a business, where
every managerial group is an
entrepreneurship funded to produce
products and services for customers.
He has implemented this philosophy in
corporate, government, and non-profit
organizations through the careful
design of culture, organizational
structure, and internal market economics.
Dean is the author of seven books, numerous monographs,
countless articles, as well as the Full-cost Maturity Model. He
invented FullCost, a business and budget planning process based
on an internal product/service costing solution. He researched the
science of organizational structure, captured in his Structural
Cybernetics framework and reorganization process. And he
developed an approach to corporate culture that leads to
meaningful change in less than a year. Dean coaches executives
on organizational and political issues, and personally facilitates
transformation processes.
From a small office in the New England village of Ridgefield,
Connecticut, Dean Meyer writes, invents, coaches leaders, and
implements organizational transformation -- all based on 30
years of devotion to the business-within-a-business paradigm.

Transcription of Podcast
Joe Dager: Welcome everyone! This is Joe Dager, the host of
the Business901 podcast. With me, today is Dean Meyer. He is
one of the original proponents of running shared services
organizations within companies as business within a business,
where every managerial group is entrepreneurship funded to
produce products and services for customers. Dean is the author
of seven books. He invented “Full Cost”, a business and budget
planning process based on internal product service costing
solutions, and he’s researched the science of organizational
structure captured in his structural cybernetics framework and
reorganization processes.
His latest book is “Internal Market Economics”, which is one of
those books that raise as many questions in my mind as it did
answers, and that is meant as a compliment. Dean, I would like
to welcome you, and could you start off by giving me the elevator
speech about you and your company, NDMA?
Dean Meyer: Thanks for having me on your podcast! The
elevator speech, well as you pointed out I am a long-time
proponent, one of the earliest proponents of funding
organizations as a business within a business. What I mean by
that is not just that the IT as a whole is a business, but every
managerial group, every manager should think like an
entrepreneur running a little business within a business. What I
do for a living is help executives -- CIOs and their leadership
teams, for example, implement that vision systemically. That is
through changing the organizational ecosystem if I may, the
organizational environment that we all live in. So I work on three
things. I work on culture, which is contrary to popular opinion,
the easiest thing to fix. Structure, which is a very mature science
-- I get myself into trouble on airplanes sometimes, I’ll be sitting
next to a guy, and they find out I’m a student of structure, they

say oh let me show you my organization chart! I’ll say well, this
guy’s fighting with this guy, this guy’s not making objectives, that
guy has ulcers. It’s that predictable! So it’s also a dangerous
science because the guy gets all upset, I deny all of that, “Who
have you been talking to?” and then they don’t talk to me for the
rest of the flight, so I guess that’s okay. Structure is my longest
standing area of research. Then most recently, just the last 15
years or so ago, I’ve been studying the application of market
economics inside of companies that sort out the resource
governance and financial processes. That’s what I do for a living:
culture, structure, and the internal economy.
Joe: Now you wrote a book on decentralization. Could you -- I
know you have a certain step process for how you look at that
and everything -- could you explain the five steps to me, or an
overview on it?
Dean: Before we talk about decentralization, let me ask you a
question. Joe, why do you think organizations exist at all? Or said
another way, why would our IT department of 100 people or
1,000 people or 10,000 people, why would our organization
perform any better than an equal number of individuals? Joe do
you know the answer to that?
Joe: The collective whole is stronger.
Dean: Why is that?
Joe: Because you’re allowed to specialize and gather knowledge
from each other.
Dean: Ah, you’ve been reading ahead! You see, some people
might say it gets everybody pointed the same direction, and I
come back and say well how about we got 1,000 people all
pointed the same direction with a strategic plan or something and

all still working individually, it still couldn’t perform. The answer is
simple: specialization. You see, as human beings we can only
think so many thoughts in a day, we can only read so much, we
can only know so much, we have only so many brain cycles. You
can use those brain cycles to be the Jack of all trades and master
of none, right? Or you can use your brain cycles to know
absolutely everything about one subject and nothing about
anything else; I call that the nerd because you can’t talk to them.
When I speak of a specialist I mean a T-shaped person. One who
across the top of the T knows a little bit about everything so as to
be able to team, but who brings real depth to one field of study,
to a specialty. Now when you combine a bunch of T-shaped
people into an organization, you have both breadth and depth.
With specialization, people accumulate more knowledge, they get
more experienced at implementing, and they can focus their
reading better so the pace of innovation picks up, productivity
improves, quality goes up, job stress goes down, conflicts of
interest go away, and all of this good stuff comes from
specialization. So said another way, an organization of generalists
will perform no better than an equal number of individuals. Or,
conversely, the more the organization permits specialization, the
greater the potential performance of the organization as a whole.
Is this common sense?
Joe: It is, but doesn’t specialization -- as you specialize you dig a
deeper hole and you become more siloed?
Dean: Siloed, we use the word silo to mean organizations that
are self-sufficient, and that’s exactly what I want to get to in
discussing decentralization. Hold that thought for just a moment.
As you become more specialized and better and better at what
you do, you become more valuable. You know who makes the
money out there in the marketplace; it’s the specialists and not
the generalists, right?

Joe: Right.
Dean: But I think what you’re referring to, Joe, is that there is
a catch here. You can’t specialize if you can’t team. If I can’t trust
you to help me, what am I going to do? I’m going to replicate
your skills and do it myself. And there’s exactly where silos come
from. If we give up on teamwork, then we would organized in a
way that pulls together all the different skills and specialties we
need to get a certain job done, a certain process or part of our
product line. What we’re doing is taking a specialty and scattering
it among silos, reducing our ability to specialize, in order to be
less dependent on teamwork. Well, that’s kind of sad. If instead
you invest in great teamwork and understanding the customer-
supplier relationship across all of the boundaries within an IT
organization and practicing that -- “Who’s prime? Okay, what
subs do you need?” -- I call them walkthroughs, and practicing
the processes until everybody gets it, if you invest in teamwork
then you can afford a much higher degree of specialization and
you don’t build silos. We behave as one organization and the
performance of the organization just skyrockets. So now, with
that tradeoff understood, the more you invest in teamwork, the
more you can specialize, and the more you specialize the greater
the performance, now let’s look at decentralization.
What does decentralization doing? It’s building little pockets of
generalists all over the company. No way those guys can perform
as well as shared service, because they can’t specialize as much.
So why would people do that? Well if they work for me, at least
they’ll treat me like a customer. At least I’ll get to control their
priorities. At least they’ll understand what’s unique about me
instead of that one size fits all stuff. And when you think of it, a
good shared service organization, one that’s entrepreneurial and
customer focused, addresses all of those concerns. They’re not
trying to force one size fits all, they’re customer focused. They’ll

pull together consortium where we have shared needs, they’ll sell
unique solutions where it’s appropriate. And the internal economy
allows each of those business units to control what they buy, so
that’s not an issue, they can still control priorities. In other words
you can control what you eat without having to own your own
grocery store, right? So if you get things right with culture,
structure, and internal economy, then shared services works. And
that allows a greater degree of specialization and hence
performance.
Joe: What does that org structure box look like?
Dean: Okay. Another way to ask that, a more technical way,
is “What is the nature of a specialty?” and you see a lot of org
charts built around processes and competencies and so on. The
process view is not really appropriate because if you build an
organization around its processes then you’ve got a scatter of
specialty, because many different processes need the same
specialties. So that goes the other way that goes back to the
stove pipes. So what makes for a good specialty? And here we
turn back to the business within a business paradigm. Instead of
roles, responsibilities, competencies, processes, that sort of thing,
each box on that org chart should be considered a line of
business. We should be specializing in what we sell not what we
do. So, for example, the DBMS engineering group sells DBMS
engines, sells performance tunings, and sells physical data
models, that sort of thing. They have a clear catalogue of
products and services. They can do whatever they want, they can
be as competent as they want at anything, but they’re bounded
in terms of what they sell not what they do.
Joe: So you’re saying our outcomes are the way we’re structured.
Dean: Yes, and specifically outcomes phrased as lines of
business within IT. So in “The Building Blocks Approach to

Organization Charts”, the little blue book, figure one lists the
various lines of business that exist within any organization. For
example, we have service bureaus that keep things running.
Those guys, they don’t like innovation. They’re cautious, and they
have a right to be, because they’re paid to keep things running
reliably, inexpensively, efficiently, safely, and securely. They will
innovate when it’s read, when it’s time, but with caution. With
technologists, that’s the engineers, technologists I call them,
completely different culture. They love innovation, they love
being out there on the leading edge; can’t run things worth a
darn, but they love inventing new stuff. That’s where our
applications developers and our infrastructure engineers, two
very different kinds of businesses; very different business
models, service bureaus vs. technologists. There are a few other
lines of business within any organization, IT included. There are
coordinators that bring us together and help us come to
consensus. For example, in architecture, an architect should not
be a dictator mandating standards and design patterns to others,
but rather should build consensus of the appropriate stakeholders
on standards, and design patterns, and policies. Same with the
security policy, it should be done by consensus, same with
business continuity, business strategy, all of those are
coordinators that help us in part by helping us come together and
come to consensus.
Then like any business within a business, we need sales and
marketing -- don’t tell anybody I said that, Joe, because we can’t
use those terms outside. I call it consultancy, but it is essentially
sales and marketing. This is our account reps, our retail
storefront if any, and our marketing which means
communications, one to many and many to one. So these are the
basic lines of business. There is one other, audit. Audit is in the
business of judging others and while that’s a legitimate line of
business, we don’t want to mix it up with any other service
businesses. You know you can’t say, look I’m from the IRS I’m

here to help. So audit should really -- you got to hold at arm’s
length. I’m going to hope that most IT departments do not have
an audit function within them. They’re not judging clients
requests, or judging one another.
The basic four are service bureaus, technologists, coordinators,
and consultancy. Those represent specialties, those represent
lines of business, and those are the building blocks by which we
assemble organization charts.
Joe: When we assemble an organization, we basically look at the
outcome of each block?
[
Dean: Yes, and you watch out for combining blocks that really
don't’ belong together. Actually if you look at figure two of the
book, you’ll see the four questions that we cask when we’re
diagnosing an org chart. This is how I get in so much trouble on
airplanes when my seatmate shows me their org chart and I tell
them what’s wrong; I think mentally of these four questions.
The first one is gaps. If any of the building blocks -- that is, lines
of business within the organization -- are missing, or if any are
done part time by a lot of people but nobody’s primary focus,
that’s called a gap. And what would you expect? Nobody has time
to really study it well, so you expect a lack of excellence. They
have higher priorities, so you’d expect unreliable processes. For
example if you leave the account rep function for the senior
management team to do in their spare time, they’re not going to
be studying methods of needs assessments and requirements
planning, of strategic benefits measurement, of consortium
facilitation, all of the distinct products and services of
consultancy, of an account rep function. They don’t have time to
study that stuff, they’ve got a business to run. And they’re not
out walking the halls, attending the meetings, engaged in the
client’s business, as you’d expect of an account rep.

Next question: what happens when you combine building blocks
that don’t belong together? Like that poor fellow that was doing
both DBMS engineering and DBMS operations, you not only get
an impossible job, boss you’ve got me going too many ways at
once, but you get conflicts of interest. I want you to keep things
stable, keep things running, and oh by the way pioneer the next
generation of infrastructure; bad job, bad structure. Here’s
another common one: I want you to design applications for a
particular data object. Design all the applications that deal with
money, we’ll call them the financial applications. Oh and by the
way in your spare time, you are the account rep to the CFO.
Here’s another group that designs all the HR applications, that is
all the applications that know about people, employees, and oh
by the way you’re the account rep to our chief people officer.
Well, that’s a conflict of interest. The account rep out there
should be business driven and selling the whole store. If what
that CFO needs is collaborative tools, or communication tools
because they’re working on investor relations, or whatever, they
should be selling the whole store in a business-driven, strategy-
driven manner. But you know what? Give a kid a hammer,
everything looks like a nail. If your other job is apps, everything
looks like just another module, and you become technology
driven instead of business driven. That’s a conflict of interest. So
watch out for combing across building blocks.
Joe: So are you’re saying building blocks in simple terms is like
playing checkers against yourself, and sooner or later you have to
pick a winner.
Dean: Well, there are no winners and losers here; they all
have to work in concert, which is where the teamwork comes in.
So the account rep is out there, understanding the business,
bottom of the T, the expertise, specialty, is in understanding
clients and their business and the linkage between business and

IT. So their job is to spot those really strategic opportunities for
IT and to build really great relations. They’d bring that business
back to the appropriate group within IT. If it’s an existing service,
they bring it to the service bureau, if not they bring it to a
technologist who offers solutions. Chevrolet, Cadillac, Rolls
Royce, what’s the client willing to buy? And once those solutions
are constructed and implemented, then the service bureaus take
over and do things like applications hosting and customer service
to keep those solutions running. So it should all work in concert if
it’s designed well.
Joe: A small company, can they apply this type of thinking? They
have to wear a lot of different hats.
Dean: If you’re down to a five person, ten person company, it
gets difficult because you don’t want to be one-deep on anything,
and so everybody’s got to do a little bit of everything. But even
very small companies can apply this; in fact it’s even more
important.
When you’re really small, you can’t afford to be inefficient, you’ve
got to do the most with the talent you’ve got. So the more you
can allow that talent to specialize, the better your performance,
and that’s really critical when you’re running such a small shop.
Sure, you can back fill one another, but everybody better have a
clear focus, and that focus ought to be determined by what
business they’re in, not competencies and roles and
responsibilities.
Joe: How do you build cross-team functionality between the two?
I mean, it’s easy to say but . . .
Dean: Yes, that’s the real work! In fact, in the structural
cybernetics process, where we implement this, the organization
chart comes together very, very quickly; in just a couple of

workshops I can have a whole leadership team at consensus on a
clean sheet of paper design. And then of course, the CIO puts
names in the boxes, and we would work with that team to make
sure we know how this organization is going to function before we
go turning the switch, unlike a lot of restructuring. That’s where
the real work begins.
We do what I call walkthroughs. We take a whole series of real-
life situations. Here’s a project we’re doing right now: based on
this new org chart, who’s the prime? And prime, what subs do
you need? And subs, do you need any subs? So you can picture a
sort of tree structure fanning out on the flip chart or the screen.
That walkthrough is a high level project plan. In fact, they would
then map it straight into their project planning system. It defines
prime and sub in the language of business, so everybody’s got to
understand what business they’re in, and what their catalogue of
products and services is. Then we can do the walkthroughs, and
that’s what builds the teamwork.
Joe: So when you’re mapping a process, you’re mapping people
or roles.
Dean: Yes, groups. This group is prime, this group is sub.
We’re not trying to do the PPM resource management job here.
We’re just trying to understand how that process works. We’re
trying to take our lines of business and mix and match them in
just the right way for each unique project or service.
Joe: If I have a value stream and I have a certain value stream
where I have a U shaped, let me just explain it as a U shaped
office where purchasing, engineering, are all in one cubicle. They
can talk to someone when the inbound sale comes. They are all
responsible for that value stream. Does the specialty need to be
more important to the engineering staff and hang out with them,
or do they need to be more responsible to the value stream?

Dean: If i understand you, if I’m somewhere in that value
stream, if I’m in the supplier management area or I’m in the
engineering area or I’m in the logistics area, first off as an
entrepreneur, I’ve got to put forward and up to date and
comprehensive catalogue of products and services, and I’ve got
to be able to deliver that with excellence, and I’ve got to be best
priced. I’ve got to know what the unit cost, the full cost is of my
products and services, and be sure I’m competitive and if I’m not
then I should be the first to recommend to bring in a vendor,
rather -- to buy instead of make. So then I’m always the best
deal in town that way.
Joe: So you’re saying that I need, as an individual or as a group,
to give the outcomes that my groups deliver, to other members
of the organization to see if they want to buy it.
Dean: You need two things then. First and foremost, you need
to know what your catalogue of products and services are the
outcomes, and you need to be really good at it and you need to
be the best deal. But then you need to do two things: You need
to sell it to your customers -- again, sell whether or not money
changes hands -- so you have to look down the value stream and
understand who the various customers for this are, and you’ve
got to build relationship with them and be sure you understand
their needs, not only for the purpose of the current project or
service but for planning your future catalogue of products and
services.
You’ve got to be very customer focused to succeed as an
entrepreneur. And you’ve also got to look back up the value
chain, because if you don’t work well with your suppliers, up the
value chain, then you can’t succeed. What you don’t want to do is
skip levels. You don’t want to go to your customer’s customer.
You don’t want to say to your immediate customer, look, I know

what’s best for you because I know your customer in turn,
because that becomes disempowering of the next group along the
value chain. If everybody just manages their suppliers and looks
after their immediate internal customers. Then, absolutely the
right things will happen.
Joe: Can you sum up the whole decentralization theme for me?
Dean: People decentralize because they want to be treated
better, they want either control over priorities and they feel
shared services makes them wait in line or beg from a committee
and they can’t get what they need. They decentralize because
they’re unique and they want things tailored to their unique
needs, they want people to understand what’s unique about them
and that’s entirely legitimate. They decentralize to be treated well
because if you work for me, you’ll be nice to me. Well let’s see,
we can control priorities by controlling the checkbook, you don’t
need your own grocery store to control what you eat, and that’s
internal economy.
A shared service provider should absolutely be willing to tailor
custom solutions for people if that’s the right thing to do, and
they should be better at it than a scattered little group of
generalists. And culture: a shared services group should be
customer focused and build great relations out there. You don’t
need to work for someone to treat them well. So if we treat
internal economy, structure -- if we have an account rep function
in the structure his job is to know those people, if we’re willing to
tailor solutions. So if we get culture, structure, and internal
economy right, then shared services takes away all the reasons
why people decentralize and gives us all the advantages of
economy, [--scale 45:43:00], and synergy. I would say if you
force consolidation into shared service, and shared service
doesn’t get those things right, the pendulum will swing back in
three to five years. The forces are there, the business units -- the

ones who make money around here -- they will eventually win.
So if you do get forced consolidation, you’re in scramble mode,
you’ve really got to quickly get it right on culture, structure, and
internal economy.
The other approach to consolidation is to earn market share
progressively over time. And in doing so, you’re never
disempowering the business units, you’re not taking anything
away from there, you’re just offering to be their vendor of choice.
In that way, you’ll gain market share progressively over time as
you earn it, there’s no contention to that, and ultimately that’s
the more effective approach. It’s kind of like the tortoise and the
hare. If you force consolidation, the hare, it’s quick but you’re
now setup to fail if you don’t really get things right quickly.
Whereas the tortoises step by step, let’s earn that market share
through performance and relationship.
Joe: What is upcoming for you? Do you offer some webinars or
other ways for people to learn more?
Dean: I love teaching and I love implementing, so I’m always
happy to meet someone on the phone, I do executive coaching, I
sometimes come in and do a workshop, typically within an
organization or a webinar for an organization, and ultimately for
the really great leaders who are out to build a legacy of a great
organization, I work side by side with them on implementing all
of these concepts. I’m involved in implementing Full Cost, that’s
the planning part of internal market economics, in a couple of
organizations right now. I’m working on structure in another
organization for the CEO. There’s always a new challenge out
there.
Joe: What’s the best way for someone to contact you?
Dean: I love hearing from people! Email us or give us a call.

Joe: And your website is . . .
Dean: The website is NDMA.com. If you’re interesting in
internal market economics go to FullCost.com. In both cases
you’ll see a navigation bar on how to contact us. Let me hear
from you! I love talking about this stuff, I love hearing what
you’re grappling with and helping you figure out what your next
steps might be.
Joe: I do have to recommend your “Building Blocks Approach for
Organization Charts”. The deeper dive, “The Internal Market
Economics” book is excellent, and I went through it thinking, I’m
going to browse through this and do an interview. I found myself
caught up in it, there’s a lot to digest! I think this is a book that
I’m going to have around for a couple months on the side of my
desk.
Dean: Thank you for saying that Joe, I’m honored! Behind
these things is what I call studies. So for a leader who’s actually
ready to implement it, you know that little blue book, what is it
110 pages? That gives you the basics of structural cybernetics;
the lines of business within organizations, those questions on how
to combine the building blocks into a great organization chart,
how to build the processes, it gives you an overview. Behind that
is an 800 page study that we use for actually implementing the
process. “Internal Economics”, what does that come out to, 370
pages, behind that are studies, multiple studies for various
modules within that framework for implementation.
When we actually implement transformations, it is a fine process;
here’s a workshop, here’s a homework assignment, here’s
another workshop; and here’s all the documentation to go with
every step of the process. These are tested processes.

Joe: I do appreciate it. The podcast will be available on the
Business901 blog site, and the Business901 iTunes store. Thanks
again, Dean.
Dean: Thank you Joe, it’s been fun talking to you.
Joseph T. Dager
Business901
Phone: 260-918-0438
Skype: Biz901
Fax: 260-818-2022
Email: jtdager@business901.com
Website: http://www.business901.com
Twitter: @business901
Joe Dager is president of Business901, a firm specializing in
bringing the continuous improvement process to the sales and
marketing arena. He takes his process thinking of over thirty
years in marketing within a wide variety of industries and applies
it through Lean Marketing and Lean Service Design.
Visit the Lean Marketing Lab: Being part of this community will
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