Your goal is to achieve competitive advantage. But is your company doing everything it can to succeed in this VUCA (Volatile, Uncertain, Complex and Ambiguous) economy? Are you sure? Tim McConnell shares how organizational design can be a powerful tool for improving performance.
This article is reprinted with permission from the October issue of PSX: The Exchange for People Strategy, an eMagazine that brings you cutting edge views and perspectives on all things related to people strategy.
Is your company properly designed to meet your goals? Are your marketing, financial and manufacturing strategies fully aligned with your overall corporate strategy? Are your structures and processes fully aligned with your business plans? Are your accountabilities and authorities aligned with your processes? Do you have the right jobs and skill sets in your company – both at the corporate, divisional and plant levels? How do you know? Because you completed a review last quarter? What about tomorrow? These issues may be costing you money and negatively impacting your operational capability.
The answers to these questions lie in the functional structure, known as the Organization Design, of your work place. This is a powerful tool for improving performance.
What is Organization Design?
Organization Design (OD) is the way your company is structured to support the strategic plan. It is the link between your business goals and how managers and staff achieve those goals. It helps achieve full alignment between your corporate strategy, your structure, and the key functions and roles in your business.
Organization Design is used to match the form of the company as closely as possible to the purposes the business seeks to achieve. It is about determining the configuration of formal organizational arrangements, including the structures, functions, processes and systems that make up an organization.
Organization Design focuses on determining the proper assignment and division of labor; establishing the appropriate level of coordination, control, authority and responsibility; and designing jobs that match the needs of your company and the skills of your employees.
Why is it Important?
Effective organization design drives productivity, communications and innovation. It creates an environment where people can work effectively. Benefits of organization design include improved employee, client and stakeholder satisfaction; improved financial performance; enhanced relations with your Board; and increased return on resource investment.
When Should I Review my Organization?
A redesign may be called for when there is misalignment between the formal organizational arrangements and the other components of your programs (such as reporting, business processes, information, performance measurement, and control systems.) These situations may be driven by the need to reduce costs and improve results, changing market conditions or technology, mergers and acquisitions, growth or downsizing, and new leadership, among others.
What to Consider
There are seven key elements to address in organization design:
1. Strategy – The basic approach to achieving your mission. Do you have an overall strategy?
2. Work Processes – The interconnected program activities and employee tasks. What are the key work processes in your business?
3. Structure – This includes work units, job design, the span of supervisory control, and delegation of authority. How are your jobs organized – by team, function, location, program unit?
4. Systems – The procedures that make your organization work. Do you have the right systems in place?
5. People / Skills – The competencies and skills needed to perform the work. Does your workforce possess the competencies and skills required to achieve success? At the appropriate level? (E.g. skilled staff doing skilled work and vice versa.)
6. Geography – How you are structured and operate across multiple locations. To what extent are you integrated? Are you local, regional, national, international, global, multinational, or transnational? Is this in line with your industry characteristics?
7. Culture – The norms of your organization, the “way we do things around here”. What are the beliefs and values held by your employees? Do they support your strategy?
What Does an OD Project Look Like?
Organizational analysis involves reviewing your vision, mission and strategy; assessing your current structure relative to your mission and strategy; drilling down to departmental levels to understand how units function; and addressing challenges and opportunities. The objective is to improve performance by evolving from your current state to a desired future state.
Implementation involves tradeoffs and balances. We often see this as cost versus everything else. The best customer service has a cost attached to it. So do product quality and cycle times. An optimal balance needs to be attained. Implementation also involves identifying options for the appropriate delineation of functions, roles and relationships; vetting these options for ‘best fit’ and tradeoffs; and developing an implementation plan that addresses change management.
Tips and Best Practices for Successful Re-organization
1. Problem Statement: Define your business needs, internal and external challenges and organizational objectives. What exactly are you trying to fix? What is your ‘desired state’?
2. Conceptual Business Model: Look in the mirror. Outline your corporate strategy, resources, inputs, major functions and outputs (products and services) in a clear and concise model.
3. Design Principles: Create a set of design principles at the start of the project. These are attributes that your new organization must have. Examples include service excellence, process efficiency, business process ownership, P&L accountability and implementability. These become your evaluation criteria.
4. Workflow: Map out the major activities and steps in your key business, engineering, manufacturing and administrative processes. Identify and link the key roles (jobs / positions) that perform each step. These become the building blocks and architectural platform of your future organization.
5. Organizational model options: Create several potential ‘to be’ states divided into three groups; A. minor change, B. practical and realistic change, and C. radical ‘outside the box’ change. Quite often the ideas generated in Group C will prove to be effective in a Group B option. Evaluate the relative advantages and disadvantages of the options using your design principles / criteria. Select a winner.
6. People: Assess the “people impact” of changes. Prepare a People Plan and take steps to address potential retraining, re-assignment, replacement and recruiting needs. Be open to the need to design a function or a unit around the skills and attributes of the incumbents – as opposed to what looks best on paper.
7. Systems and processes: Focus as much on how the new structural model will work as on what it looks like. Ensure that systems and processes are fully integrated with the re-design.
8. Culture: Be aware of your organizational culture (unwritten norms and behaviors). Ensure that the re-design is in sync with your culture.
9. Change management: Expect management pushback and employee resistance to change and plan accordingly. Appoint a senior executive as project champion. Develop a clear communications plan and adhere to it. Explain the reason for the changes and the benefits it will provide. Sell the re-design. Win hearts and minds.
10. Implementation: Pay attention to how the re-design will actually happen. Prepare a detailed implementation plan and hold people accountable. Address risks and bottlenecks as early as possible. Define, measure and report on detailed metrics. Quick decisive action is often more successful than an evolutionary process.
11. Beware of entropy (see below).
Entropy is the silent killer of business performance. Entropy is the second law of thermodynamics. It is the measure of the disorder of a system. Entropy is a natural process of degeneration. It is an automatic and unavoidable trend toward disorder. To put it bluntly, if you stay still you will die. In organizations, the alignment of functions, positions, skills, processes, human talent and performance to our business priorities deteriorates over time and we don’t see it.
The cure for entropy is ongoing alignment; achieving and maintaining full alignment between your business strategy and your structure and processes – in other words – organization design.
Tim McConnell is the Managing Partner of McConnell Consulting (Organizational Architects) Inc. in New York. More information on Organization Design can be found at www.McConnellConsulting-NY.com.