What admired firms don't have in common

The World's Most Admired Companies are respected for their talent, innovation and financial strength. But they get there very different ways.

By Mina Kimes, reporter
March 6, 2009: 6:25 PM ET

NEW YORK (Fortune) -- There are some characteristics that nearly all great companies share--talented senior management, a passion for innovation, and financial strength, among others. But when it comes to how they're organized, the World's Most Admired Companies have little in common.

"There's a fair amount of literature suggesting that companies have moved through a historical continuum, from functionally organized structures to international business units to globally integrated firms," says Katie Lemaire, a VP at the Hay Group, the research firm that works with Fortune to create the Most Admired list. "But that's not at all the case. For these companies, there is no best practice for organization."

Before the Hay Group finalized the 2009 list, they surveyed 70 of the contenders about their organizational structure, then interviewed 15 executives whose firms landed in the top three for their industry last year.

The first trend they found: There isn't one. The World's Most Admired companies, even those in similar industries, display a wide variety of organizational structures.

For example, Medtronic (MDT, Fortune 500) and 3M (MMM, Fortune 500) both make medical devices, but are structured completely differently. 3M is primarily organized by line of business i.e., health care products, office supplies, security tools. Medtronic has such business groups, but it also has top-level, functional units that focus on areas like legal issues, strategy, and human resources. What admired companies do have in common structurally, though, is that their blueprints rarely change. "Structures enable strategies, and many of the companies haven't changed their structures," says Lemaire.

Admired companies are sticking to their organizational plans, even if the economic crisis is leading them to make cuts, says Lemaire.

"Coke (KO, Fortune 500) has a long-term commitment to go into developing countries," she says. "People say, 'The Russian economy is falling apart, why are you going forward?' That's their strategy, and it's a good time to take market share." Indeed, 24% of admired companies are trying to expand their global reach despite the recession, compared to 11% of their peers.

So how do admired companies adapt to the changing environment without changing their org charts? "It's the operating models that enable companies to be dynamic," says Lemaire. "Admired companies can bend in the wind without breaking." Say a company has one unit that sells widgets in China while another does business development in New York. During the usual course of businesses, these divisions may have little to do with each other--until a new opportunity for development arises in Beijing. Then, the operating model, or flow between departments, must shift so that the units can build a new relationship.

Amongst admired companies, such agility is prevalent. Eighty-four percent of them say they can generate flexible responses to local situations, compared to 73% of other businesses. Take IBM, where individual employees deal with top clients. These customers may always see the same rep, but behind the scenes, IBM (IBM, Fortune 500) is hooking up different service and product groups from business units across the globe to serve them. That type of process doesn't always show up on an org chart, says Lemaire, but it's a key component to what makes a company like IBM thrive and adapt to unique situations. It isn't easy to work with multiple managers in different parts of the world, but admired companies find a way to make it work. Eighty-three percent say they're effective at managing multiple reporting relationships, vs. 58% of their peers. One way they do that, says Lemaire, is by actively supporting their operational goals.

At John Deere, employees must take on assignments in different countries, and often partner across continents--a tractor designed in India, for example, might be manufactured in Germany. To help its workers understand how they fit together, Deere (DE, Fortune 500) offers classes that train them in working across borders.

The other procedure that's clearly defined at admired companies is a mechanism for finding talent; 96% of them say they have one that's effective, vs. 73% of other companies. That's the greatest common denominator that the Hay Group found among the admired, and, according to many executives, the most difficult to achieve. To top of page

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