A More Strategic and Effective Approach to Organization Design

All companies that are growing, or repositioning for growth, must eventually consider the topic of organization design. The reason why is because organization design – literally how people and work are organized and held accountable – is a critical platform for enabling and fulfilling a company’s over-arching business strategy and vision for growth. To be blunt, the right strategy supported by the wrong organizational structure will fail.

Changing a company’s organization design is therefore a highly strategic exercise, given its implications for how well a business can ultimately execute on its strategy and achieve its growth objectives. In fact, Robert Simons of Harvard Business School considers organization design as “the most important determinant of success for implementing strategy in a large organization.”1

The problem, however, is that many companies develop organizational changes in an excessively informal and ad hoc manner, compromising the organization’s potential effectiveness from Day One. This article aims to share a more strategic process for organizational design, based on three guiding principles.

  1. Articulate the “case for change”
  2. Determine the highest-value activities
  3. Make choices and manage downsides

 

1) Articulate the “case for change”

Strategy drives structure, which makes it critical to start with clear growth objectives and desired outcomes for the organization. With that crisp articulation of the company’s vision for growth, we can then better frame the “case for change,” or, in other words, why and how an organization design change is necessary to help the company move forward.

For example, we may have determined that fulfilling our company’s growth strategy requires improved closeness to our customers. Before initiating any organization design work, we want to start by asking several questions to confirm and characterize the “case for change”:

  • How is the current organization structure limiting our ability to fulfill our growth strategy?
  • Can we identify the specific functions or activities that are not well-aligned with our strategy?
  • Where in the organization do we see a need for greater accountability for performance?
  • Could more resources, capability development, rewards and incentives, or process improvements serve us better than a change in organizational structure?
  • How might an organizational structure change better position us for growth?
  • How might an organizational structure change support or lead to a competitive advantage?
  • What do we expect to gain from an organizational change?

Answers to these types of questions should help to validate and articulate the “burning platform,” along with crystalizing the rationale for addressing those issues through organization design.

 

2) Determine the highest-value activities

Not all groups or activities in an organization have the same impact on whether the company can fulfill its growth strategy and objectives. Therefore, after substantiating the “case for change,” it is important to identify the organization’s highest-value activities or deliverables that the company must “get right,” since that determination will influence the organization design.

For example, we may have deemed “improved closeness to customers” as a top priority for delivering on our company’s strategy. We may also recognize this focus as different from competitors’ and a potential source of competitive advantage. This principle would then become a primary driver of the organization design, and improved closeness to customers would become a key litmus test before implementing any organizational design change.

Ultimately, business leaders need to be armed with a few key guiding principles to ensure the most “on strategy” organizational structure. These principles should help with thinking through different organizational models and choices (e.g. P&L ownership, global versus regional groupings, product line versus brand management, differing customer types and needs) to define the best solution to fulfill the company’s growth strategy and objectives.

 

3) Make choices and manage downsides

Any organizational structure involves choices – and the subsequent tradeoffs that come with those choices. For example, a decentralized regional structure will need to work harder to identify and aggregate feedback and best practices from the field. And a global structure organized by specialized product groups will need to work harder to manage and serve its larger customers that span those different product categories.

To this end, any proposed organization design should also consider supporting and enabling levers, such as processes, measures, and rewards. Since all organizational structures have limitations or risks, the following questions can help to clarify and then manage potential downsides:

  • What internal information-sharing and alignment is most important to grow our business?
  • Given the key groups or individuals involved, what are the most efficient and effective ways to enable that information-sharing and alignment?
  • Based on the proposed organizational structure, which activities, deliverables, or interfaces may seem “gray” in terms of roles, responsibilities, and accountability?
  • Are teams clear on their top priorities and measures of success? How can we ensure that teams are squarely focused on their “big rocks” (i.e. few key goals that will move the needle for the business)?
  • Which metrics will drive the right focus and behaviors in the organization? Are our metrics sufficiently focused on advancing and monitoring key business outcomes versus simply tracking activities?
  • Which outcomes will we reward? How can we best motivate and reward teams for their role in driving better business performance?

These types of questions should help business leaders to acknowledge and address the tradeoffs from a proposed organizational structure, resulting in better risk management and achievement of the organization’s desired outcomes.

 

Conclusion

Organization design is a fundamental platform for implementing a company’s over-arching strategy and growth plans. And for that reason, organization design warrants a more comprehensive and rigorous approach than many companies allow. A clear “case for change,” followed by identifying highest-impact activities, and ultimately supported by key levers (e.g. processes, measures, rewards) should enable an effective organizational structure that fulfills the company’s vision and plans for growth.

 

1 Levers of Organization Design, Robert Simons, 2005

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