It’s no surprise that during times of economic uncertainty, many companies turn to organization design as a key to bolstering against environmental changes and risk.

A well-thought-out organizational redesign can transform a sluggish and inflexible company into one that is agile, responsive and capable of delivering exceptional value. Organization design also lays the groundwork for aligning the talent and workforce strategies — it’s hard to put “the right people in the right roles” if you don’t have a clear line of sight into the critical roles and their impact on the organization’s success.

The journey toward effective organization design often begins with a thorough assessment of the company and its needs. Doing so is particularly vital when there is pressure to create a design that’s tailored to drive impact without wasting resources on experimental or imprecise solutions.

While there’s value in beginning with an understanding of the current state, leaders tend to focus on factors that fail to pinpoint the best improvement opportunities specific to their business. By leading with the external comparisons associated with benchmarking and overemphasizing cost reduction as the end state, they neglect to uncover the unique ways in which the organization design can help to execute the business strategy.

These two major pitfalls can weaken the value of an organization assessment and jeopardize a company’s unique strategic priorities:

Overemphasis on Benchmarks

To be clear, there is value in understanding how companies similar to yours have defined and arranged certain capabilities, what functions they’ve centralized or decentralized, and some of the ways in which their roles interact with one another to make decisions and drive the business forward.

However, it’s crucial to recognize the limitations of external benchmarks. They can tell you what other businesses are doing, but they often fall short in explaining why these choices made sense in light of the organization’s current circumstances and future goals. Factors such as industry dynamics, company culture, competitive positioning and organizational objectives were likely major considerations in peers’ design choices.

Moreover, many benchmarking resources fail to explore the implications of design decisions.

For example, consider one manufacturing company’s decision to decentralize its HR group in order to reduce turnover through more locally tailored talent programs. Some of the associated impacts of this decision might include increased spending on HR roles based on a less leveraged model as well as the increased burden of coordinating key companywide HR processes.

These implications on cost and talent experience may not be obvious to a casual observer. Without a sense of the inputs and outcomes of design choices, it’s too easy for business leaders to talk themselves into — or out of — following market norms, which can divorce organizational choices from their strategic implications and even undermine the very purpose of the assessment.

Decontextualizing Cost Data

We often see organization design conflated with cost-cutting — and to be sure, eliminating waste and bloat is an expected and desirable outcome of a redesign.

However, focusing an organizational assessment on cost without nuance — like the need to consider investing in differentiators and growth drivers — can result in the “blunt instrument” phenomenon, where out-of-context cost data may influence leaders to make cuts that are too close to the business’s core.

Cost data by itself also does not account for the commoditization or uniqueness of different types of work: the same dollar investment in two different capability sets may result in wildly different calibers of resulting performance.

For example, we’ve seen many leaders associate meaningful savings with streamlining their technology stacks. For those who began with disparate systems, a narrower tech footprint may reduce both costs and complexity, resulting in an overall win. However, for companies with more integrated or strategic technology investments to begin with, cutting costs here risks needing equal or even greater investments to realize the value those systems provided.

An organization assessment that does not do the work of matching costs to strategic priorities may yield misleading insights; it’s critical to use internal strategic and performance data to connect financial investments to the ultimate value and return they drive.

Finally, organizational assessments focused on cost may overlook invisible costs and value. For example, we can quantify workforce stability and engagement, projection of competitive advantage in a specific market or brand value associated with maintaining a high degree of quality. These should be part of the conversation before decisions are made that may put these intangibles at risk.

What Can We Learn?

Assessing an organization’s design and effectiveness is much more a game of cause and effect than a stand-alone exercise.

• The causes: How does our strategy dictate the organizational choices we’ve made? How have specific goals, philosophies and priorities dictated the allocation of investments? And where have we become misaligned with these initial intentions? What reasons do other companies have for the decisions they’ve made?
• The effects: What connections can we draw between our current organizational choices and the outcomes we want to create? How has the positioning of our differentiating capabilities (core sources of competitive advantage) within the organization’s structure enabled them to flourish, and where are they being stifled by a lack of clarity or abundance of bloat? How is this playing out for our peers?

We have a much greater ability than ever to explore these causes and effects with the support of tools that can surface insights quickly and non-invasively.

For example, we can identify patterns in collaboration that remove any uncertainty or speculation from hypotheses around how organizational factors influence behaviors. We can cast a much more specific and targeted net to benchmark only companies with similar strategies, competitive advantages or environmental challenges. And we can apply increasingly sophisticated models to forecast effects of our choices and mitigate unforeseen circumstances.

With further use of tools like these and a strategy-centered organization assessment at the root of design considerations, you can be sure you’re shaping the design that will best unlock your organization’s potential.

Originally published in Agenda, February 26, 2024