What Is Organization Design?

What Is Organization Design? Why Do You Need It?

Organization design is the process of identifying the aspects of workflow, interactions, roles and accountabilities, decision making, structure, and the workforce in a company that aren’t working well and realigning them to create better business results. It focuses on improving the ways people work together, how they use their skills and capabilities, and the ways they use technology.

That description may sound a little abstract but the effects of a poor organization design are all too concrete — and highly detrimental — in the workplace. An organization that is poorly designed tends to have:

Inefficient, time-wasting processes
A lack of focus and people pulling in different directions
Capabilities that are diffused across teams or buried deep in organizational layers
Managerial bloat
Too much fire fighting and just-in-time management
Poor collaboration and at times, turf battles and blame wars
Slow decision making
Inability to mobilize the right resources on the right work
Poor information exchange — top to bottom or between departments
High performers that are stretched too thin
Narrow and uninteresting jobs that lead to too much employee turnover

These problems are not embedded in a company’s DNA. They arise over time as companies grow out of their early organization structure, or when that structure collides with the realities of the marketplace, such as new competition, changes in customer behavior, or a new business model. The modern business environment is one of rapid change. Every company will need, at some point, to redesign their structure to keep up.

What are the guiding principles of organization design?

The process and results of organization design may be different for every company. However, there are some important guidelines that can increase an initiative’s chances of success.

Focus on what really drives value. It’s tempting to see everything, including the kitchen sink, as creating value, but doing so will water down your efforts. Anchoring design decisions around your existing talent, especially leaders, can also suboptimize your design. It may sound counterintuitive, but organizations and the markets they serve change much faster than people do. If you want different results from your organization, design around the true drivers of your business strategy and focus your efforts on them. These are the things most difficult for competitors to copy that give you a competitive advantage.
Start with the end in mind. Your company should already have quantifiable and tangible business goals. Every organization design choice you make should support these goals in a clear way and align with agreed-upon design principles. Good design principles outline the factors that differentiate the organization and provide competitive advantage. They should be specific, measurable and not too broad. Be future-oriented, aspirational, tie closely to capabilities (not activities), and focus on differentiation (not table stakes).
Form follows function. Frequently, leaders start design efforts by redrawing organization chart boxes and lines, but this approach does little to improve results. There are many high performing organizations with vague structures, but they get the other parts of organization design right. Start with goals, design criteria and principles, and customer requirements. Having clear workflows, accountabilities and decision-making processes is much more important than reporting relationships. Organization structure can be thought of as the management overlay to drive quality and accountability once the other aspects of your design has been ironed out.
“Who makes the decisions?” is a central question. Who makes specific kinds of decisions and who should (and must) be involved in the decision making process is essential. It’s important for everyone to know the answers to these questions and for the answers to make sense. Including too many people slows down decisions, makes it harder to be decisive, and can water down the final decision. Consulting too few people risks missing key facts or overlooking creative solutions. Much of the tension in poorly organized workplaces comes from reliance on structure or floating all decisions up the management hierarchy and not putting decisions in the hands of the people best equipped to make them.
There is no “right” design. There are always going to be fads in organization design – boundaryless, holacracy, matrix, the list goes on. However, this isn’t the place to be a fad-follower. Nor should you choose a design or structure “off-the-shelf” assuming that its described advantages will replicate for your business. There is no perfect structure – every design option is a compromise. There is likely, however, to be a “better” structure to optimize the delivery of our strategy based on your differentiating capabilities, assets and current stage of growth and organizational maturity. Designing the optimal organization requires wrestling with a number of trade-offs and factoring in whether current leaders and the culture will successfully embrace or reject the new ways of working that will follow.
Change management starts from the beginning. Those who are most affected by the change, as well as key influencers, should be actively engaged from the beginning of the process to build alignment to the vision and business case for the new design. Bringing together stakeholders to agree about the business requirements, differentiating capabilities and design principles are three essential alignment points. Getting alignment here makes choices down the road about roles and accountabilities, structure, decision rights and who goes where in the organization chart much easier to accomplish. It also helps to equip stakeholders to begin to enroll their teams around the rationale for changes.

What elements should be included in organization design?

Don’t expect better results by simply drawing new organization charts in a vacuum without the “organizational wiring” such as roles, accountabilities and decision making. An integrated and holistic design approach is really the only way to improve strategy execution. Sequence also matters. Remember, form follows function and the design elements listed below should be intentional and fit together to drive effective strategy execution.

Workflow and interactions: The critical tasks, sequencing, and collaboration required to deliver services and create value.
Roles and accountabilities: The core, support, and leadership roles that are critical to executing on the work, the responsibilities of each role, and “ownership” for key business outcomes.
Performance measures: Financial, operational, customer, and employee metrics that guide and monitor execution effectiveness and results.
Decision rights: Decision authority and processes for decision involvement.
Structure: Alignment of teams and optimal spans and layers to provide management oversight and ensure execution and results.
Workforce: The number, type, location and skills of the workforce needed to execute.

At Lotis Blue Consulting, we believe connecting our knowledge and experiences with our clients’ intimate understanding of their own business is the way to deliver an effective organization design. Learn more about how we can help you identify current and expected future business requirements and improve your ability to fulfill them.

By Holly Feldman and Aaron Sorensen Ph.D., December 22, 2020