THE BIG PICTURE ON ORGANIZATIONAL DESIGN
You should solve org design after the other business model strategies.
Within structure, roles & competencies, there are eight elements of org design.
Too much change to org design is difficult for organizations to digest.
Strong org design projects are built on a foundation of comprehensive analysis and collaborative iteration.
ORG DESIGN - STRUCTURE, ROLES & COMPETENCIES
Organizational design is crucial to a company's people strategy. Org design centers on the reporting structure of people, their roles and competencies. To drive the efficiency and effectiveness of the organization in developing and delivering the value proposition and go-to-market, it is essential the organizational design aligns with and reinforces the mission and business model strategy. Employee journey and culture are the two other elements of a company's people strategy, which we cover in the next module.
THE 8 ELEMENTS OF ORG DESIGN
There are eight main elements to solve for in organizational design. Within the structure, you are solving for 1. organizing principles, 2. framing, 3. overall size and team size, 4. layers and span of control, and 5. reporting structure. For roles and competencies, you are solving for the three levels of 6. team, 7. individual, 8. cross-functional.
1. Organizing Principles
Organizing principles help shape the organizational design. On one end of the spectrum is the concept of a flat and social org, and on the other side of the spectrum is a hierarchical structure.
Flat organizations have very few or even no defined layers, instead relying on self-managing individuals and teams. Flat organizations don't rely on an org chart, instead depending on the social connections of individuals to collaborate on specific problems and opportunities.
Gore Inc., the $3+ billion manufacturer of high-end waterproof materials has a flat and social organization. Consistently placing in Forbes' Top 100 Best Places to Work, Gore doesn't have an org chart, refers to all employees are "Associates," and relies on the self-managing teams to innovate on new ideas and products. Flat and social organizations can be the right model for companies in highly dynamic markets, where innovation and agility are essential to competing.
On the other side of the spectrum are highly hierarchical organizations, where the structure is hierarchically disaggregated into functions. Decisions and directions typically flow down from executives to functional leaders to team leaders to individual contributors. Hierarchical organizations generally are a good fit for markets with a slower pace of disruption and where operational execution and specialization is key to competing.
Of course there is substantial space between the two sides of the spectrum, where there may be a defined hierarchy, but the culture supports a high-level of communication and direction flowing in all directions, collaboration, and team orientation.
2. Organizational Framing
The next level of org design is around organizational framing. Is the org design going to be framed as a functional organization, organized into business units, markets and/or geographies, or matrixed across multiple dimensions?
Determining the right framing structure is based on sheer size, focus, economy of scale, core competencies, market, and competitive dynamics.
In far too many situations, especially with new leadership regimes, reframing the organization (e.g., reorganizing from markets to geographies) is heavily relied on to improve the organization, only to have the organization typically fall into chaos and inefficiency. The change management necessary to properly reframe an organization is enormous, given the changes required to potentially thousands of processes across the organization, reporting relationships, and roles and competencies. Too often than not, in reorganizations the leadership does not invest enough resources and effort into the necessary change management.
3. Overall Org & Team Size
In org design, it can be channeling to decide on the overall size of the org, functions and teams is one of the toughest decision. There are many data sets and benchmarks to help guide this decision. Some of the most commonly used benchmarks include revenue per employee (productivity), net income ratios, SG&A, and functional breakdowns. Our sister company, Kentley Insights has these benchmarks and many more on over 1100+ industries.
4. Layers & Span of Control
Over time, an organization is like a house, it gets messy. Typically, one of the first things to address in org design is layers and span of control.
Layers are the number of management layers in the organization, while span of control is the average number of direct reports per manager. Typically the fewer layers (5 or less) and the higher the span of control (7-12) the better.
Doing the analysis and mapping out the org is always one of the most fruitful org design analyses. Expanding span of control and delayering the organization will drive efficiency and effectiveness by improving decision making, communication, collaboration, and reducing bureaucracy and costs.
5. Reporting Structure
The most nuanced and complex decision in org design is landing on the actual reporting structure, which necessitates putting names and titles to boxes. The better the data and analysis informing the decisions, the better decisions.
Deeply understand & assess your current leaders and your bench of future leaders with objective functional metrics/scorecards, leadership and interpersonal assessments, 360-degree feedback and succession plans.
6. Individual Roles
Individual roles are a mix of competencies, responsibilities, and accountabilities. Ensuring people appropriately define and support the right roles is a critical component of org design.
Most companies tend to spawn too many new roles and positions. Role proliferation can lead to unnecessary complexity, redundancy and costs. In these situations, part of an org design is to rationalize the number and scope of roles and positions. Not only does role rationalization lead to a more efficient and effective organization, but also typically leads to more growth potential for individuals by providing them with a clearly defined and achievable career path, more mentors, and more standardized training and support.
When designing a new role or redesigning an existing role, the ROLES framework below helps set up individual roles for success.
7. Team Strategy
Most individuals in a company role up to permanent or temporary teams. Within an organization, each team should have its own charter defining their mission, team strategy, structure, roles, employee journey, comp & benefits, environment, norms and values. Creating, evangelizing and living by the team charter supports a team's success and member satisfaction.
8. Cross Functional Excellence
The last element of org design is cross-functional excellence. Siloed organizations can be highly political, strategically misaligned, and cross-functionally inefficient. What defines cross-functional excellence is the level of coordination, circulation, and collaboration.
Cross-functional best practices are typically pragmatic and simple. First, define and expose functional processes, so that anyone can easily understand how best to work with a function or team. Also, establish and manage well-defined cross-functional processes. Moreover, focus on ways to better connect people across the organization through a directory or social networking platform, rotational management programs, all-company events and communications, interest groups, cross-functional project teams, and other ideas.
ORG DESIGN STRATEGY PROJECT
An org design strategy project can drive substantial positive change while improving the overall efficiency and effectiveness of the organization. Any org design strategy project involves four basic steps, including baseline, design, plan and execute. The details of each step are outlined below.
FINAL THOUGHTS ON ORG DESIGN
Org design should always be informed by and architected to support the broader business model strategies. Given the potential expansiveness of org design, most companies don't try to take on all eight elements of org design at once, instead prioritizing the 2-4 areas to go after. This is a prudent approach since org design changes are challenging, given you are asking many individuals to change their daily behaviors and processes. Too often leadership teams abstract org design to an exercise of moving boxes on a PowerPoint presentation. Good org design focuses more on how to holistically elevate, better circulate and align all of the human energy and potential that fuels the growth of every successful company.
DOWNLOAD THE ORG DESIGN WORKSHEETS & TEMPLATES
To get you started on creating a strong org design, download the free PowerPoint, which includes:
1. Core Competency Template
2. Org Goals & Composition Template
3. Org Structure Template
4. Team Charter - Strategic Alignment
5. Team Charter - Employee Journey & Culture
6. ROLES Worksheet