It makes a lot of sense for organizations to structure themselves mirroring the participants of their marketplace. The one-to-one (nearly) relationship allows firms to understand their customer’s business better, align their services or products and in general stay clued to trends. Specialization leads to divisions that develop their own products, pricing, packaging and practices.
The trouble starts with an industry shakeup. Regulations changes, disruptive technologies swing by, consolidations happen and suddenly the elegant equation doesn’t look so nice anymore. There are early warning signals though. Signs of cannibalization within the firm are a reliable canary in the mine. Initially no one minds – “shuffling money from the left pocket to the right” is the standard justification. The problem is looked upon as an accounting issue. The cancer spreads in the meanwhile. Quite soon, the organization cannot satisfy customer needs anymore without getting tangled in its own organizational challenges. Mind you, the internal nature of the problem does not make it trivial. In fact it makes it more onerous. No one is interested in spending resources correcting a problem that when solved yields nothing immediate – like say what winning a large contract would bring. Finally when the fixers arrive, the firm becomes busy solving self problems rather than that of the customer’s. Bad, but inevitable.
Changing organizational designs incrementally, especially if you are in a dynamic industry, is a much superior option than big-bang transformations.