Rightsizing. Downsizing. Restructuring. Organizational Design.
Words that had little use in boardrooms 5 years ago now strike fear in the hearts of your entire workforce, increase the levels of stress and decreasing productivity and morale. However it doesn’t need to be that way.
Like many other management terms, organization design does not have a common, well-accepted definition. To give you some context, organization design is a structured and analytically driven systems approach to configure an organization to foster achievement of valued business, customer, and employee outcomes. In other words, it is a results driven approach that will change the way you use technology, create processes, and formulate strategies.
When is organization design most appropriate?
One of the most common mistakes made by leaders is to undertake an organization design project without doing appropriate due diligence. The targeted results are not likely to be achieved when you are addressing symptoms of the perceived business problem rather than the root cause. Listed below are the most common situations in which organization design is most appropriately used.
1. The business strategy has changed. The rule here is “form follows function”, or more specifically, strategy drives structure. Whenever an organization is about to embark on a fundamentally different strategy or when internal factors (e.g., introducing a new product or entering a new market) or external factors (e.g., competitor actions, industry trends, introduction of disruptive technology) dramatically change, leaders should evaluate whether their businesses’ current organization structure is appropriate.
2. The organization is under-performing. The design of an organization can have significant impact on the revenue, cost, and profitability of a business. Sometimes redesign is necessary because of performance problems created by the poor alignment of the structure. Indicators of poor alignment include lack of coordination between interdependent work units, excessive conflict, unclear roles/responsibilities, poor work flow, reduced responsiveness/flexibility, and poor resource allocation. The number of organization levels, type of structure, and which functionality is centralized versus decentralized can affect any of the following:
• Economies of scale/cost
• Having the right people in the right place
• Level of accountability/role clarity
• Ability to leverage technology
3. The organization is experiencing strong growth. Certainorganization structures, such as a customer/market structure, a matrix structure, or a product structure, more readily lend themselves to alignment around growth drivers, while others work particularly well in environments where transaction volumes are significantly increasing.
4. There has been a change in leadership. New leaders frequently use organization design as an initiative to “shake up” or transform the organization. The redesign efforts allow executives to transplant staff whom they have effectively worked with in the past, to remove “blockers,” and sometimes to facilitate cultural change by inserting leaders who will model desired behaviors.
Organization Design Best Practices
If you are like most businesses, and have experienced significant shifts in economic conditions, workforce numbers, or new technological pressures, it is likely you’re ripe for an exercise in organization design. Listed below are organization design best practices that should be incorporated into most projects:
- Structure always follows strategy. An organization’s business strategy should be used as the primary driver of any design efforts. Any future structure must closely align with the strategy and cascade from it.
- Use a formal data-driven approach. The success of design projects is greatly enhanced when organizations use a flexible and scalable process for assessment, design, and implementation. The most successful processes are data driven, capturing information from a diverse array of stakeholders.
- Use formal design principles and metrics to objectively assess alternative design options. Successful design projects use both design and quantitative metrics to evaluate design alternatives and later, during implementation, to evaluate the impact the selected design has had on the organization.
- Benchmark other related structures and incorporate learning. Together, we can collect benchmarking information on a myriad of organization structures. Benchmarking can be used to get a design team to think out of the box; capture and integrate learning and mistakes from other organizations; and think about new ways to integrate technology, work flow, and structure.
- Establish discipline by using a Project Management Process. Success is to a great extent dependent on an organization’s ability to set up a process and supporting tools that are not overly rigorous, but address the myriad of project details. This includes the following:
- Appropriate project structure (number of teams and team membership)
- Governance (team chartering)
- Issue resolution
- Scope control
- Risk management
- Project monitoring/reporting
- Inter-team coordination
- Recognize organization design as more than boxes and butts. All organizations are made up of an architecture that has three distinct elements: Technology, Organization, andProcess.
Technology comprises the data employees need to make decisions, the information systems hardware like telephones and computers, the production/operations technology that is instrumental in delivering your core product/service, and the software applications that interface with process and hardware.
The organization comprises the administrative policies or business rules that drive behavior, business systems, human resource practices, capabilities, and workforce competencies.
And lastly the process element comprises the business processes, physical infrastructure of the business and physical layout of work areas. When redesigning an organization, it is critical to fully understand the “ripple effects” that any changes to organization structure will have on each of the elements of architecture. Success is dependent on crafting a solution that proactively aligns all elements of architecture with the business strategy.
- Identify and celebrate short-term wins. An enterprise-wide design is akin to a marathon. To keep the various stakeholders engaged, it is imperative to identify, celebrate, and reward early wins. This will enhance your ability to sustain the new structure and ensure it is institutionalized.
- Proactively identify and address change management issues. Most design projects have considerable people/organizational implications. Examples range from culture change and stakeholder engagement to communications and modifications to the rewards systems. The earlier these implications are identified and proactively addressed, the higher the success rate of these projects.