This series on organization design targets readers unfamiliar with the subject, illustrating how intentional design enhances performance.
The first post (Why Organization Design Matters: Part 1), posed two questions to tee up specific, tangible reasons why design matters.
- What’s the payoff for an organization that commits to deliberately and thoughtfully redesigning itself?
- What practical, impactful difference does it make?
Part 1 of the series looked at the critical contribution of organization design to operationalizing strategy. Why Organization Design Matters: Part 2 examined the essential importance of aligning the organization to its marketplace. Why Organization Design Matters: Part 3 considered how design can help organizations to address and eliminate obstacles to success they have been continually unable to overcome.
In this post, we’ll examine an often unrecognized or poorly understood function of organization design – how organization design shapes patterns of information processing.
Shaping patterns of information processing
A primary function of structure has long been (and continues to be for many organizations) managerial control. Whether the organization was deliberately designed, or its original structure morphed to its current form over time, any organization’s structure defines hierarchical levels of authority, reporting relationships, and, significantly, chain of command. Information, decisions, assignments, instructions, permission, etc. all flow along the chain of command indicated by the structure. This is especially useful if hierarchical command and control are the primary objective of an organization’s design. Historically, it was also a particularly good fit when external environments were uniform and stable, and markets moved more slowly.
As external environments became more complex and much faster-paced, an additional reason why organization design matters emerged and displaced managerial control as a primary function of structure. It is the ability of structure to shape patterns of information processing and there are two dimensions of this to consider.
Shaping Patterns in Two Dimensions
The first dimension has to do with the organization in relation to its external environment. Complexity, ambiguity, and a great deal of speed demand that organizations be able to scan, grasp, and act quickly on the demands, requirements, threats, and opportunities confronting it. The requirement for this capability poses a choice point for leadership. Either some mechanism to do this can be bolted onto the existing organization structure and its functionality can be integrated in some meaningful way OR the organization can be redesigned to match the complexity of the environment in which it operates and thereby do this more naturally and effectively.
The second dimension has to do with the internal flow of information and the degree to which the pattern of information processing matches the requirements of the work. How is information channeled and shared such that it moves fully and quickly to the point where it is needed for action and is unimpeded by boundary barriers?
The examples of Medical Devices (Why Organization Design Matters: Part 2) and Digital Network Solutions (Why Organization Design Matters: Part 3) from the previous two posts are illustrative of both points of organization design shaping patterns of information processing.
In the case of Medical Devices, the healthcare marketplace had become highly variable. Where the marketplace initially had been predominantly “fee for service” and chief surgeons were the key decision-makers and consequently the selling target, the penetration of managed care in various markets and the procurement changes that accompanied consolidated network dynamics created an environment that the headquarters marketing and sales organizations couldn’t easily comprehend and respond to.
Redesigning to make the sales and marketing organizations field-centric and expand the number of geographic regions from four to eleven to better align with the variation found in the market was a critical choice. Deploying important elements of marketing to the field provided front-line market intelligence that could be shared more quickly within a smaller region but also shared throughout the system.
The organization was far better positioned to scan, make sense of, and act on the nuances present in a highly variable external environment. Making each region a profit and loss center raised the level of accountability and underscored the importance of collecting and distributing market intelligence for quick action.
In the case of Digital Network Solutions (DNS), the speed of products to market was being inhibited by the inherent limitations of a functional organization. While function as an organizing principle has useful, practical advantages, the speed of information, work processes, and collaboration across functional boundaries tend not to be among them.
The product architecture that DNS settled on turned the organization 90 degrees. Instead of functions working on aspects of all products, product work resided in its own singular structure and the functional disciplines necessary to develop, design, and bring a product to market were embedded in these. Instead of flowing across functional boundaries, information and the collaborative exchange of ideas flowed within a unit that was focused on a product segment and could be used more easily by products within that segment. To balance the need to integrate and coordinate across product lines, “lateral” processes such as project management, engineering services, and engineering discipline were designed to ensure that information and matters needing to cross product lines were deliberately addressed.
Closing Reflection
In the previous two posts, I closed by summarizing how organization design mattered in relation to the two questions noted at the top of this post from the perspectives addressed in those posts. I refer you to the material payoffs and impactful differences in each of those cases.
In closing here, I want to underscore the benefits of organization design in helping to structure patterns of information processing. The first is to make an organization more knowledgeable and responsive to the trends, forces, events, and developments shaping its external environment. The second is being able to facilitate the distribution, flow, and use of information inside an organization. Both are critically important.
- How good is your organization’s market intelligence?
- How well does your organization align to the current and emergent demands of its marketplace?
- How easily does information move throughout your organization?
- Is it getting to where it is needed in a timely way to inform deliberations, decisions, innovation, creativity, and interdependence?
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