5 Steps to Continuously Improve your Organizational Design

By Ron Carucci

Tuesday, August 16th 2016

Organization design is not a static, one-time event. It is an ongoing management discipline, no different than the stewardship of any resources – team, people, or even a manufacturing plant. Much the way those must be continually attended to and fine-tuned, so must your organization be refined and continuously improved.  

There is an enormous difference between intentional fine-tuning and impulsive “tinkering.” As markets shift, competitive requirements emerge, or through the normal course of growth and maturation, ongoing adjustments to your organization must be driven by strategic criteria, reliable fact bases, and systemic wisdom. In our first article, we explored counterfeit approaches to organization design and their costly consequences.  In this part, we will look at the continuous organizational improvements executives need to be ensure success.

The Chief Commercial Officer at one client of ours had a reputation for making abrupt changes to the organization – adding new functions, moving pieces around to new reporting areas. Sometimes he would tell a few specific people, other times he’d make blanket announcements. He became known as the mad scientist, and eventually people just checked-out in order to cope with his impulsivity. In recounting her experience through tears, the head of one function said to me, “The other day, a guy walks up to me and says, ‘Hi – I’m your new head of advertising – nice to meet you.’ I had no idea he’d been hired and he had no idea what his job was.” You can imagine the havoc that gets wreaked when leaders show no regard for the enormous ripple-effects of such actions. 

Organization design, and the continual refinement of those designs, should be done for three reasons:

  1. To realize the benefits of scale, bringing together sets of individuals or groups who perform similar work to create greater value.

  2. To ensure information can move easily across the organization; ensuring that decision-making and knowledge enhancement happens in an unencumbered way.

  3. To shape behavior – ensuring people are motivated to perform and contribute as the organization requires, participate in the social fabric of the organization in productive ways, and are empowered to make the appropriate decisions and constrained from counterproductive behavior.

For executives to build a high performing organization that can translate a strategy into great results, here are five things they need to do…

  1. Build an organization around a viable strategy that articulates where you will differentiate to win. Organizations must answer critical questions of identity – in which markets will, and won’t, we compete, what will distinguish us from competitors so that our targeted customers will choose us, and what are we trying to accomplish within those segments and for those customers? It may sound obvious that organizations should be shaped around these choices, but it’s astounding how often that doesn’t happen. Frequently organizations create divisions, silos, cumbersome bureaucracies and cultures that impede rather than enable acting upon these choices. If your critical source of competitive advantage is responsiveness or speed, the organization must be built for that. If it’s quality and service, that’s a different configuration. A narrowly defined set of well-constructed choices is the foundation of a good organization design.

  2. Group and resource competitive work disproportionately to necessary work.  Not all work is created equally. There is work that directly drives, or supports, the ability to compete. That work should be organized for effectiveness. This is the work you have to be better at than anyone else, and that you believe investing $1 in will return $5. Necessary work, tasks that you have to do on par with anyone else, or in compliance with regulatory work, should be organized for maximum efficiency. Problems happen when competitive and necessary work get too close, or intermixed, and the urgency of the everyday tasks undermines the strategic work of remaining competitively focused. There are many options for grouping work. You can create boundaries around geographies, functions, customer segments, service or business lines, or a combination of them (a matrix). Again, those choices must be driven by strategic requirements as noted above. How executives group work forms the foundation of the organization (which is why haphazard tinkering with the organization leads to such chaos). Within these boundaries, organizations allow for smooth coordination, deepening expertise, and execution of a defined set of activities. The challenge with any set of boundaries is that they create the need for coordination between groups. Without planning for how work will be coordinated and integrated, the grouping decisions become meaningless. Which leads to the next important activity…

  3. Link work so that coordination is seamless, decision rights are clear, and value created at seams is protected. The vast majority of an organization’s competitive muscle will reside across units more so than within them. Great service sits at the intersection of sales, customer service, and supply chain. Product innovation sits at the intersection of R&D, marketing, and business intelligence. Cost competitiveness sits at the intersection of manufacturing, logistics, and operations. Global reach sits at the intersection of multiple geographies. Where these seams come together, work must be tightly linked to ensure coordination is not encumbered by the boundaries between groups. Work can be linked by well-defined core processes that define repeatable standards by which work is executed. Hierarchy is a linking mechanism that defines clarity of vertically integrated tasks. Creating parts of roles like a liaison across organizational boundaries or coordination with counterparts in other parts of the organization is also a way to link work. Of particular importance is the careful definition and placement of decision rights – which groups of leaders have which authority and resources to guide the organization. This is the organization’s governance. 

  4. Design governance so decision rights, authority, and resources are distributed to, and by, the right people. Regardless of whether you lead a start-up, a small to medium sized business or a large publicly traded company, well designed governance defines and promotes desirable behaviors in your organization and helps avoid negative ones. It helps clarify leader’s expectations, their spheres of power, appropriate performance measures, relationships among key stakeholders and how they intend to function. Think of governance as the set of authority structures, roles, accountabilities, and processes by which critical aspects of the organization are managed, and the various groups of leaders who gather to make and execute the decisions vital to those critical aspects. “Critical aspects” include things like, strategic prioritization, resource allocation, and performance measurement around the enterprise strategy, the planning and building of P&Ls and budgets, managing the portfolios of products, clients, and talent, and the long-term financial and strategy processes that plan for results. The ultimate value of well-defined governance is synchronization. Governance creates a predictable “cadence” to a business so that all of the interconnecting gears are working in coordinated fashion and the strategy is being executed and monitored appropriately. 

  5. Design clear and meaningful roles. It’s common fare in organizations for people to respond to the question, “So what do you do here?” with something like “Well, there’s what my job description says, and then there’s what I do every day.”  Jobs, like organizations, must be carefully crafted, not around people’s preferences or idiosyncrasies, but around needed work and outcomes. The “mitosis” factor of organization growth usual has jobs “divide” the way cells do as humans form. It’s one of the worst ways to scale an organization. It creates costly redundancies, and worse, boring, narrow jobs. Over time, organizations bend the necessary work of a role to fit the employee within that role, diluting what needs to be done and settling for what can get done. Roles should be designed as widely and largely as possible so people are challenged, continually learning and fulfilled. Stretching people’s skills sustains a feeling of personal growth and making vital contributions. It also enables great organizational breadth, something vital for when people are ready for expanded leadership responsibilities. 

The best executives are listening and watching for the roles that need refining, governance that needs to be clearer, and how the strategy can be better articulated. But beyond noticing and merely tinkering, the best executives know to design their organizations continuously and thoughtfully.

This field should be skipped by humans.
Comments subject to review.