In today’s rapidly changing business environment, effective organization design is crucial for enhancing performance and profitability. This case study explores how Deere & Company, a leading producer of agricultural, construction, forestry, and turf care equipment, restructured its organization to improve efficiency, align employee goals, and boost shareholder value.
The Context of Deere & Company
Deere & Company, with a rich history of dedicated employees and quality products, faced significant economic and organizational challenges at the turn of the century. The company’s operations were capital intensive, highly decentralized, and spread across a diverse range of products with cyclical business cycles. This structure led to inefficiencies and a lack of focus on overall profitability.
Emergence of Performance Challenges
Deere & Company encountered several issues that necessitated a reevaluation of its organization design:
Decentralization: The company’s highly decentralized structure led to inefficiencies and wasted economic value.
Asset Management: Deere’s approach to managing assets and profit margins was loose, resulting in an “asset heavy and margin lean” situation.
Global Business Environment: The company struggled to keep pace with the rapidly changing global business environment and market demands.
The Role of Organization Design Overhaul
To address these challenges, Robert W. Lane, who became Chairman and CEO in 2000, implemented several strategic changes:
Shareholder Value Added (SVA): Deere adopted SVA, a metric that measures net operating profit after taxes minus the cost of capital. This metric provided a common performance measure that was easily understood and embraced throughout the firm.
Restructuring Business Units: Deere restructured its largest division, agriculture, into two business units: worldwide harvesting and tractors/implements. This change allowed each unit to focus on the underlying economics of its products and operate as integrated global product teams.
Online Performance Management System: An online system was introduced to align employee goals with SVA targets. All 18,000 salaried employees developed goals explicitly linked to the company’s objectives, with specific SVA targets set for each product line.
Implementation and Support
The successful implementation of Deere’s organization design overhaul was supported by:
Unified Leadership: The executive team provided strong commitment and clear guidelines for the transition.
Employee Engagement: The simplicity and consistency of the SVA system focused employee behaviors on improving performance and raising SVA.
Talent Management: Changes in talent selection and training practices ensured a workforce with strong customer orientation and collaborative skills.
Outcomes and Reflections
The overhaul of Deere’s organization design resulted in several positive outcomes:
Financial Performance: By 2006, Deere’s net income more than doubled, revenues increased by almost 50%, and SVA was near $1 billion.
Cultural Shift: The company’s culture shifted from family values to those promoting a high-performance organization.
Improved Efficiency: The new structure facilitated better coordination and integration across global operations, enhancing overall efficiency and responsiveness.
Implications for Organizational Development
Deere & Company’s experience underscores the importance of a well-designed organization structure in enhancing performance and profitability. Key takeaways include the need for clear performance metrics, alignment of employee goals with organizational objectives, and fostering a high-performance culture. Organizations can learn from Deere’s approach by prioritizing strategic alignment and efficient asset management.
Conclusion
Deere & Company’s transformation of its organization design demonstrates the significant impact that strategic restructuring can have on performance and profitability. By adopting SVA, restructuring business units, and aligning employee goals with organizational objectives, companies can enhance efficiency, boost shareholder value, and achieve sustained success.
Connect with OrgEvo Consulting
At OrgEvo Consulting, we specialize in helping organizations develop effective organization designs. Our services include strategic planning, organization design, and performance management initiatives tailored to enhance efficiency and profitability. Contact us today to learn how we can support your organization in achieving excellence.
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