|Read in President & CEO Magazine
Read my bi-monthly column in President & CEO:
Responding – Not Reacting is a Critical Leadership Skill
|Advanced Concepts: Best Practices for Organization Design
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:
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.