This is the fifth and final post of the Why Organization Design Matters series. Part 1 of the series looked at the critical contribution of organization design to operationalizing strategy. Part 2 examined the essential importance of aligning the organization to its marketplace. Part 3 considered how design can help organizations to address and eliminate obstacles to success they have been continually unable to overcome. Part 4 explored how organization design shapes patterns of information processing in two dimensions.

This final entry offers two summary perspectives on why org design is important. The title of this entry names the first – the Organization Design Difference. The second is the Organization Design Effect.

The Organization Design Difference

In a company I worked for early in my career, the corporate officers would periodically “restructure” their functional organizations. They followed a ritual that I found fascinating.

They would engage in an armchair exercise to identify structural changes. This was usually done by the corporate officer in isolation but occasionally with the counsel of their HR manager or other trusted advisors. They would then write a one-page memorandum that offered a rationale for the organizational changes they intended to make along with a revised organization chart that appeared on a separate page. The memorandum often used language like “provide for greater control of…” or “result in closer oversight of…” or “reduce span of control…” Then they would send the memorandum to the CEO for review and approval before announcing the change and publishing the memo to the whole organization.

As I think back on this ritual now, I believe there were good intentions at work here and that the changes that were made had some degree of positive effect. However, they were narrowly focused on the exercise of oversight and control and nothing more fundamental changed. The functional organization largely remained the same and any improvement in performance was incremental at best.

Organization design, as it has been addressed throughout the series, is much more than the arrangement of boxes and placement of names on an org chart. Organization design is an enterprise-wide, deliberative approach involving broad engagement to systematically and carefully rethink and reshape an organization. This includes not only its structure – its skeletal system – but also its vascular system – how the organization interacts with its environment, how work and information move through the organization, how integration and coordination happen among units, how peoples’ efforts are directed and brought to bear in executing work consistent with the strategy, and how the entire effort is underpinned and supported to ensure that the system has what it needs to be successful. This is what I mean by the Organization Design Difference.

The process of design is driven by lots of inter-related decisions that are carefully considered at successive levels of content and detail. There are foundational decisions involving the overall architecture of the organization based on a single organizing principle or combination thereof. At deeper levels, the decisions add detail that flesh out the architecture and give it operational definition eventually down to the daily and weekly work system.

These guided, decision-driven deliberations enable leaders to consider thoughtfully where and how they want to focus the organization and the collective effort of their people. For example, in Part 2 of this series, Medical Devices concluded it needed a much more granular geographic structure to match the complexity and rapidly changing landscape of healthcare. The organization shifted from being headquarters-centric to being field-centric. The number of geographic regions was expanded from four to eleven. Parts of headquarters marketing were forward deployed to the field to provide front-line market analysis and strategy.

In Part 3, Digital Network Services decided it needed to organize into a product structure to focus development effort within product families to speed delivery to market. The product groupings were informed directly by the new strategy. Functional resources based on expertise and experience were distributed to the product groupings and cross-cutting functions such as Project Management, Engineering Services, Design Verification, etc., became lateral processes for integration and coordination.

The organization design difference described here provides leaders the ability to design or redesign their organization to create what is perhaps any organization’s last sustainable competitive advantage – uniting and optimizing the singular skills and talents of its workforce with the strength of its technical work system to produce a unique solution.

The Organization Design Effect: Focusing Organization and Member Effort

There are two more potent benefits inherent to organization design alluded to above and threaded throughout this series. I call these the Organization Design Effect.

Focusing the Organization

Organization design begins at what I choose to call the strategic level. This is the level at which the overall shape or, as it has been referred to here, architecture of the organization is set. It is based on one of the five pure organizing principles (function, product, customer, geography, and process) or some combination thereof and it establishes the major groupings of activity and member effort that will shape how the organization works overall.

This level of design is directed at two objectives. The first is to align the organization to the demands and requirements of its marketplace. The second is to operationalize its strategy. While marketplace demands and requirements should be apparent in the strategy, the marketplace – especially in today’s world – moves quickly and should be continuously monitored.

This is the first effect. Strategic design aims the organization at the most salient demands of its marketplace and its own expression of how it intends to be successful in it.

Focusing Member Effort

At successively deeper levels, there are a host of decisions that operationalize the strategic design. If, as we’ve said above, strategic design shapes the overall architecture of the organization, operational design decisions at two successive levels add the details.

These decisions involve the designation of units within the big groupings including unit purpose and function, task domain, the skills, knowledge, and abilities that must be resident in the unit, etc. Next come decisions about job design, staffing, changes to key business and work processes, mechanisms to coordinate and integrate differentiated effort and so on down to the level of detail that brings to life the daily/weekly work system.

As design progresses, design decisions increasingly focus on individual members and become the principal determinant of individual contribution. They establish the units and teams that individuals will become members of, determine reporting and peer relationships, specify the tasks and activities that comprise jobs and define individual contribution, set up paths of progression, and shape line of sight to outcomes. In so doing, these decisions tap into important social psychology dynamics such as social identity, affiliation, belonging, in-group/out-group dynamics, interdependence, and autonomy. Taken together, this is the second effect.

There is a related aspect of this that we will explore in a later post. The nature of these social psychology dynamics fundamentally influences organization culture. Organization culture, I submit, is the eventual, critical consequence of organization design and it is the cultural fortification of design that harnesses and animates the human organizational experience.

Closing Reflection

Throughout this series, we’ve looked at reasons why organization design matters and they are highly consequential. They range from operationalizing strategy, aligning an organization to the dynamics of its marketplace, surmounting difficult operational challenges, to shaping patterns of information processing. In this last entry, we’ve seen that it also possesses the ability to shape and focus organizational and individual effort in service of overall organizational effectiveness.

Future posts will look at how to prepare for organization design and how to go about it. I invite you to stay tuned.

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?

]]> https://pda.us.com/why-organization-design-matters-part-4/feed/ 0 https://pda.us.com/why-organization-design-matters-part-3/ https://pda.us.com/why-organization-design-matters-part-3/#respond Mon, 22 Jul 2024 15:22:52 +0000 https://pda.us.com/?p=641 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.

In this post, we’ll look at how organization design can help organizations to address and eliminate obstacles to success they have been continually unable to overcome.

A Persistent Obstacle

I have worked with a number of clients whose organization’s current “design” and accompanying arrangements were unable to effectively address a stubborn, persistent problem. For example, a high technology manufacturing organization I consulted with had a product quality problem they couldn’t overcome. They had tried numerous, incremental quality fixes and various forms of brute force and had not made appreciable progress. The cause, as they ultimately diagnosed, was rooted in the assembly line work system and all of the associated assumptions and hierarchical control arrangements they had designed into it. When the organization and work system were successfully redesigned with self-managed production and support teams at the core, product quality increased by 1000% and other key performance indicators plus overall process control showed similar remarkable improvement.

In another example, the one we’ll examine here, a different technology company was chronically slow to market with its new product releases and it was costing them the advantages of being first to market.

Digital Network Solutions (not its real name and subsequently acquired) was a technology company that designed and manufactured diagnostic and monitoring tools for data network convergence solutions (multimedia, telephone, and data on a single network). Speed to market to keep pace with the competition was vital, but as we all know, being first to market has considerable advantages. It establishes market leadership, builds brand recognition and reputation, captures market share and revenue before competitors can play catch up, and places the leader in the enviable position of setting price.

Digital Network Solutions (DNS) had competitive products, but it was regularly being beaten to market by competitors on new product releases. That meant that, while DNS was doing well, it wasn’t experiencing the “first-to-market” benefits. DNS’s product development process was embedded in a functional structure and simply took too long. After yet another second-to-market finish, the president resolved to address the problem head on.

DNS went back to basics. The leadership team recast their vision, developed a new mission statement, and refined their strategy. The discovery work done for strategy purposes paved the way for organization design. A set of design requirements (also referred to as design criteria) thoroughly informed by their vision, mission and strategy work was a logical outcome.

Design requirements are data-based statements that are used as principal reference points for organization design. Here are a few examples of the DNS statements that were an outgrowth of the vision, mission, and strategy work:

The organization must be designed to:

• Expedite the timely delivery of products
• Maximize responsiveness to market demands
• Foster innovation and creativity
• Promote interdependence in product development

On the heels of the strategy work, the leadership team engaged in a structured design process that unfolded over three full days.

Their work began with an organization modeling exercise. Organization modeling (to be addressed more completely in a future post) is an activity in which participants develop operating models of the organization using different organizing principles (the pure forms being function, customer, product, geography, and process) with a laser focus on responding as completely as possible to the design requirements. The objective is to draw pictures of how a particular model would work and organization charts are forbidden. Participants use bubble diagrams to indicate various groupings of work, adjacencies to indicate relationships, arrows to indicate information and workflow, interdependencies, and the like. The idea is to animate the organization by telling a graphical story – this is how we see this model working.

The organization models were critically reviewed and scored against design requirements. Models that scored poorly on requirements were eliminated but valuable design features were incorporated into surviving models. After several iterations, considerable deliberation, and combining valuable elements of various models, they decided unanimously on a front-back product architecture for the organization with a marketing front end. In cascading fashion, operational level detail was added to the model once the strategic level of the design was decided. Detailed design was addressed as each of the product groups was launched.

Here is the client’s original depiction of the strategic organization model they designed.

The product segments were derived directly from the new strategy. Functional resources based on expertise and experience were distributed to the product groupings. However, some cross-cutting functions, such as Project Management, Engineering Services, Design Verification, etc., were retained as lateral processes for integration and coordination. Shared Services underpinned and supported the whole organization.

The Added Value of Organization Design

At the beginning of this post as in the first post of this series, I posed two questions:

• What’s the payoff for an organization that commits to deliberately and thoughtfully redesigning itself?
• What practical, impactful difference does it make?

Consider the following:

In the two years following organization redesign, Digital Network Solutions beat its competition to market in two of the product segments and experienced “first-to-market” benefits. In addition, the new design was promoting the kind of innovation, creativity, and interdependence the leadership team had hoped for. Designing to marshal and focus the organization’s resources in a new way to address seemingly insurmountable obstacles can indeed make a difference.

• What obstacle has your organization been unable to overcome?
• What incremental, operational fixes (or perhaps brute force) have been tried and failed to achieve the desired outcome?
• How can you imagine marshalling your organization’s resources differently to address your stubborn, persistent challenge?

]]> https://pda.us.com/why-organization-design-matters-part-3/feed/ 0 https://pda.us.com/why-organization-design-matters-part-2/ https://pda.us.com/why-organization-design-matters-part-2/#respond Wed, 05 Jun 2024 16:09:02 +0000 https://pda.us.com/?p=638 This series on organization design targets readers unfamiliar with the subject, illustrating how intentional design enhances performance.

The previous 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 offered five responses to these questions and addressed the first – the critical contribution of design to operationalizing strategy. In this post, we’ll examine the second– aligning the organization to its marketplace.

Market Alignment: Designing to align with current and emerging demands

Organizations do not exist or operate in a vacuum. A discussion of open systems theory is beyond the scope of this post, but it is important to appreciate that all organizations operate in the context of a larger environment.

In the crudest sense, environment is everything outside of an organization’s boundary. However, not everything outside an organization’s boundary is relevant. The undifferentiated, external environment can usefully be narrowed to its most relevant aspects and three concepts help to do that.

The first is domain. Domain is the claim an organization establishes for itself in terms of range of products, population served, and goods or services rendered. For example, universities are not in the business of highway construction and maintenance and pharmaceutical companies are not in the business of oil and gas exploration and production. Organizations operate within their chosen domain.

The second concept is task environment. Task environment is those parts of the environment that are relevant to an organization’s goal setting and goal attainment. An organization’s interactions with these elements define its task environment.

The third concept is environmental dynamics. Environments are not stable. They are subject to undercurrents and upheavals that sometimes subtly and other times dramatically change the landscape.

• Trends: Slow-moving but steady impacts over time.
• Forces: Faster impacts than trends but not as sudden as events. Technical disruptions are prime examples.
• Events: Sudden impacts, such as the COVID-19 pandemic, which rapidly alter the landscape.
• Developments: Impacts that unfold over time, neither as slow as trends nor as sudden as events. The penetration of managed care into the healthcare industry and the acquisition and consolidation of independent hospitals into large national networks, as you’ll read in just a moment, are examples.

When domain, task environment, and environmental dynamics are combined, they help us define and characterize an organization’s “marketplace” – a more useful concept than environment as simply everything outside an organization’s boundaries.

Markets and organizations interact constantly. Organizations must regularly scan and understand their marketplace, learning and planning adaptively and proactively. Ignoring this dynamic interaction can be highly problematic. Here is one such story.

The Case of Medical Devices

I had the privilege of consulting with a medical devices company on a fundamental redesign of its sales and marketing organizations. Medical Devices (not its real name) not only designed and developed surgical devices and procedures but also trained physicians in procedures and the use of its devices. From the time of its founding, it experienced a meteoric early rise to $600 million in revenue by the end of year five. In year six, sales slumped.

Since the time of Medical Devices’ launch, the landscape of healthcare had begun to change dramatically and swiftly. Managed care had begun to penetrate much deeper into many more markets. A great deal of acquisition and consolidation had changed the face of the market, and large national networks had acquired independent hospitals. As the combination of managed care and national networks began to dominate, the sales target had shifted. Where it was once the chief surgeon who determined what procedures and what equipment would be used, increasingly those decisions were being made by procurement departments.

The market reality and associated assumptions upon which Medical Devices had been founded were changing rapidly and, in some cases, had vanished. The initial assumption of a homogenous market landscape was gone. Further, the marketplace was highly variable even within existing regions and headquarters marketing didn’t understand the nuances in the various geographies. The locus of control for decision-making had shifted – a huge break from the founding assumption. The clinical sales force that Medical Devices had been hired and trained to sell to chief surgeons was ill-equipped to sell to the procurement officers that had displaced them. In short, the organization didn’t align with the major marketplace characteristics that had evolved and were continuing to evolve quickly.

The Medical Devices leadership team, after much thoughtful discussion and reflection, concluded they didn’t know what they didn’t know and needed to get smart fast. They further concluded that the challenge ran deeper than operational fixes would address and determined that marketing and sales organizations must be redesigned to better align with the marketplace.

A thorough description of how leadership and the whole organization worked to get smart and position themselves for redesign will be addressed in depth in later posts when we look at the process of redesigning an organization.

The proposal for the sales and marketing redesign incorporated several key features (among many others):

• Shift to Field-Centric Focus: Moving emphasis from headquarters to the field to better address regional market needs
• Increase in Geographic Regions: Expanding from four to eleven regions to align with important geographic segments, allowing for more targeted strategies
• Profit and Loss Centers: Making each geography a profit and loss center to encourage local market scanning, learning, and adaptive planning
• Forward Deployment of Marketing: Placing parts of headquarters marketing in the field to provide front-line market analysis and strategy
• Market Development Function: Creating an organizational unit to work with managed care organizations, demonstrating how the company’s devices and procedures could improve patient outcomes and recovery times
• Sales Force Re-equipping: Training the sales force to sell to procurement officers in addition to chief surgeons

Implementation began with a prototype geography to test and refine the new approach. Full implementation was completed within 15 months.

The Value of Alignment to the Marketplace

At the beginning of this post as in the first post of this series, I posed two questions:

• What’s the payoff for an organization that commits to deliberately and thoughtfully redesigning itself?
• What practical, impactful difference does it make?

Consider the following:

In the second year following the redesign, with the features of the redesign in place across all the new geographies and the sales force retrained, top-line growth increased by $100 million on previous revenue of $600 million. In each of the next two years, that $100 million top-line growth was repeated. By the end of year four following the redesign, revenue approached $1billion.

Designing to align with the current and emergent demands of the marketplace can make a difference. Members of the Medical Devices organization certainly thought so.

• What about your marketplace has changed/is changing?
• Does your organization still reflect the founding assumptions that may very well no longer match the current marketplace conditions?
• Where does your organization’s marketplace seem to be headed and what needs to be done to have your organization meet it effectively in the future?

In An Introduction to Organization Design, I defined “organization design” as a comprehensive, systemic approach intended to rethink and reshape an organization, including its structure, processes, social system, and support systems, to achieve its goals. I distinguished between organization design/redesign and other terms that are used interchangeably but don’t at all mean the same thing – namely, re-organization and restructuring.

In this post and the four that will follow, I want to address specific, tangible reasons why organization design matters. What’s the payoff for an organization that commits to deliberately and thoughtfully redesigning itself? What practical, impactful difference does it make?

In my experience, there are five answers to these questions:

1. Operationalizing Strategy: Organization design serves as the most potent tool in operationalizing a company’s strategy. Essentially, it’s about translating strategic intent into tangible actions that drive competitive advantage. The effectiveness of a strategy isn’t merely in its conception but in how well it’s put into practice.
2. Market Alignment: Designing the organization to align with the prevailing demands and conditions of the marketplace is crucial. This ensures that the organization remains agile and responsive to changing customer needs and industry trends.
3. Addressing Challenges: Organization design can help tackle persistent challenges that hinder organizational effectiveness. By rethinking and reshaping existing structures and processes, organizations can overcome barriers that impede growth and innovation.
4. Information Processing Patterns: Design influences how information flows within the organization, impacting decision-making processes and overall performance. It shapes communication channels, collaboration dynamics, and knowledge sharing practices.
5. The Organization Design Difference: Design is much more than the arrangement of boxes and placement of names on an org chart. It is an enterprise-wide, deliberative approach involving broad engagement to systematically and carefully rethink and reshape an organization.

In this post, we’ll look at the first – operationalizing strategy. In four following posts, we’ll look at each of the others.

Organization Design is the Most Potent Tool for Operationalizing Strategy

Strategy, very simply, is an expression of how an organization intends to be successful in its marketplace. Strategy’s purpose, after all, is to establish and sustain a durable competitive advantage. Any strategy’s utility, and ultimately its value, are not a matter of how elegantly written it is but rather by how thoroughly and well it is operationalized.

There are many impediments to operationalizing strategy fully, but one of the most common is the organization itself.

Existing structure and other hardened arrangements very often hinder:

• the flow of information across the organization,
• collaboration across functional boundaries,
• information and resource sharing among units, and
• cooperative effort.

These in turn are also influenced by dynamics and systems that pervade the organizational landscape –

• In-group bias and out-group discrimination that foster territoriality, and
• Administrative mechanisms such as performance management and the reward system that often discourage cooperative and collaborative behavior.

In short, many organizations’ strategic intentions are disabled by features and norms that are baked into the organization by way of its current “design.”

Imagine for a moment an organization that designs and manufactures consumer products is successful but wants to go to the next level and really distinguish itself from its competitors. In a departure from the past, the organization chooses to compete on truly differentiating itself based on product innovation and design. Also, imagine that the organization has a legacy hierarchical structure that has hardened into disciplinary siloes with little cross-boundary exchange.

The contrast is deliberately stark, but you get the point. If differentiation on innovation and design is the strategic intent, then purposefully designing the organization and its arrangements to reduce significantly or eliminate organizational friction and to stimulate collaboration, experimentation, prototyping, and easy information exchange, etc. is essential.

Organization design, as you will read in the following posts, is a powerful tool for aligning actions with strategic objectives.

• How the organization’s attention and resources are focused through its overall architecture, and
• How member actions and cooperative effort are directed through carefully considered design decisions…

      make the deliberate design of an organization the most potent tool at leadership’s disposal for enabling and living into its strategy.

To be certain, other ingredients are necessary for strategy to be successful, but none possesses the same potency. By directing attention, effort, and resources through deliberate design decisions, leaders can effectively operationalize their strategy and drive organizational success.

In the second of these posts, we’ll explore how organization design aligns organizations with marketplace demands.

The Quest for Competitive Advantage

Achieving competitive advantage in business has always been a relentless quest.  Any advantage a company can develop and sustain translates into winning and retaining more customers and generating more wealth.  Historically, companies have relied on proprietary technology, a stable, loyal workforce, exclusive access to capital, and control of local markets to create competitive advantage.

The last four decades provide an interesting montage of the parade of strategies companies have tried to differentiate themselves from their competitors.  In the early 1980s, diversification was a strategy of choice.  Companies acquired dissimilar enterprises in an effort to extend their reach and demonstrate their competence as well as buffer themselves from market instability in their core businesses.  

From the middle 1980s into the early 1990s, total quality was the rage.  As customers recognized that they need not settle for mediocre quality, the quest for distinctive quality became the advantage-building agenda.  This was true not only for hard goods, but also for customer service.  If distinctive quality was the quest, the Deming and Baldridge awards were the badges of ultimate achievement. 

A little later in the 1990’s, the emphasis shifted.  Process re-engineering and lean thinking became the new battle cry of competitive advantage.  The advantage, according to conventional wisdom, belonged to those who had lean and streamlined work processes.

Over the last 20 years, the emphasis has shifted again. Approaches like IT innovations that drive proprietary capabilities, big data analytics, and strategic partnerships and alliances have emerged as advantage-building strategies. 

Looking back over the last 40 years, each successive wave of advantage-building strategy had its merit.  Demonstrated competence fosters general market confidence that continues to attract and retain customer loyalty.  Quality is and always will be an important hallmark of products and services.  Lean, efficient work processes will indeed save money and serve customers well.  However, hindsight also makes it clear that the lead enjoyed with each successive wave of advantage-building strategy lasted only as long as it took others to catch up.  The advantages achieved by the companies engaging in these strategies were temporary.  Were they worth the effort?  The answer is yes.  However, they became table stakes in the marketplace; nothing less, but also nothing more.

In a highly competitive, global marketplace where the advantage of proprietary, innovative technology is, at best, brief, where a stable, loyal workforce has been replaced by worker “free agency” and migration, and where investors with cash are clamoring for choice investment opportunities, what can a company do to differentiate itself from the competitors in its market domain?  

If the strategies of the recent decades have failed to create sustainable, differentiating advantage, what then is left?  I believe the late David Nadler and co-author Michael Tushman had it right when they wrote, “… the last remaining source of truly sustainable competitive advantage lies… in the unique ways in which each organization structures its work and motivates its people to achieve clearly articulated strategic objectives.”  Said another way, perhaps the last sustainable competitive advantage any organization has is its ability to design and redesign itself in unique ways that unite and optimize the singular skills and talents of its workforce with its technology to reflect and respond to the dynamic demands of its market.

What Is Organization Design?

Before answering the question, it is important to acknowledge that there are other terms that tend to be used interchangeably with organization design but don’t at all mean the same thing. Two of these are “re-organization” (or “re-org”) and “restructuring.”

Re-organization is a term commonly applied to a re-alignment of organizational units, management responsibilities, and people. Re-orgs are done for reasons such as integration of acquired entities, consolidation of units with similar or complementary functions, separation and realignment of dissimilar functions, emphasizing certain capabilities, achieving operational economies, etc. Re-orgs have a practical purpose. They are, however, typically not frame-breaking activities. They occur within the framework of existing organizational arrangements, and they don’t fundamentally change the whole organizational system.

Restructuring is broader. Corporate restructuring is the process of changing a company’s management, finances, and operations to improve efficiency and effectiveness. Changes are aimed at increasing productivity, improving product or service offerings as well as quality, and reducing cost. Merger or consolidation, acquisition, downsizing, downscoping, recapitalization, change in corporate identity, etc., are common restructuring strategies. Restructuring likely includes the re-alignment of organizational units and therefore often incorporates re-organization. 

To make matters fuzzier, not only are these two terms used interchangeably for organization design, but they are also often used interchangeably for each other. Organization design, while sharing the objective of improving organizational performance and sustainability overall, is very different. 

For many, organization design is an org chart exercise. Move some boxes around, change some names, and there you have it. When “organization design” is approached in this way, it is little more than cosmetic and becomes solely about structure and hierarchy. Organization design, as is intended here, is much more than boxes and names on an org chart.  

Organization design is a comprehensive, systemic approach intended to rethink and reshape an organization, including its structure, processes, social system, and support system elements, to achieve its goals effectively.

Organization design has several qualities and characteristics that differentiate it from re-org and restructuring.

1. First, organization design proceeds in successive levels of content and detail. Consider building a house as an analogy. Construction begins with laying a foundation followed by framing. These establish the skeletal form the house will take. Next, successive structural elements are added to the exterior and interior. These result in the definition of spaces and relationships as well as the infrastructure to make the house work as intended. Ultimately, finishes are applied to the interior and it is furnished to assume its final intended design.

Organization design follows the same progression. The stages are designated as some variation of strategic, operational, and detailed design. Strategic design addresses the “architecture” of the organization. It is based on core organizing principles or hybrids thereof and gives the organization its form. Operational design elaborates the strategic design and builds out the structural elements that more fully define unit functionality, relationships, and business and work processes. Detail design describes how teams of people will work within the operating units.  Team goals, roles, and procedures are defined and committed to by those who will do the work. 

2. Second, organization design explicitly considers an organization’s unique challenges. Every organization faces unique challenges based on its core business products or services, the diversity of products or services, the number of competitors in the market, and competitive pressures concerning cycle time, technical features, innovation, price, etc. When these challenges are framed as design requirements (statements of “specification” to which the design must respond), they become the primary reference points for making decisions at each level of design. Defining the design requirements helps to ensure that an organizational response to the unique challenges are baked into the design solution.

3. Third, it addresses what is the most important function of any organization – information processing. Organization design enables information processing patterns that most closely match the information processing requirements of the organization’s environment and its work. What information needs to be where and when in order to inform deliberations, decisions, and actions?

4. Fourth, it is continuous. There is no “one best way” to design an organization. Organization design is a set of trade-offs. The art of design is to optimize the tradeoffs to address key challenges in the moment and consider it the best current response until changes in the marketplace require adjustments. Design, therefore, is an iterative, action-learning process that is never static.

There is much about organization design to understand and the task requires more than a single post. In the next entry (and several that follow), we’ll take a look at the practical, material reasons why organization design matters. Subsequently, we’ll explore how one gets started, what groundwork must be laid to help ensure success, and how one goes about actually designing an organization.  Please stay tuned.

A short story illustrates what’s at stake.

I once facilitated a retreat for an eight-member executive team that had been together under the leadership of the current CEO for nearly two years. In the initial meeting, the CEO shared her perspective on the team and the issues she wanted to address. After a thorough exploration of these and an exchange of mutual expectations about working together, I agreed to facilitate the retreat and made my customary request to interview each of the other members of the team.

It was during the interviews that the team members’ sense of important issues to address began to diverge from the CEO’s. Here are three quotes that represent what team members shared.

“The role of the team is not clear. We don’t know if we’re supposed to just drive in our lane or work with each other across the whole organization.”

“Are we simply a sounding board or are we a decision-making team? Mostly we get asked to comment on things and Jessica (not her real name) decides. There’s no buy-in to decisions.”

“I have the impression that we are just a hierarchical conduit to the rest of the organization for sharing information and nothing more.”

Team members shared that the team had been “functioning” without a clear understanding of its role, scope, boundaries, authority, and responsibility. In short, it wasn’t functioning anywhere near its potential.

Based on my working agreement with the client, I shared an anonymous summary of interviews with Jessica so we could plan carefully how to approach the retreat. I highlighted the matter about the unclear role and function of the team and how the executives thought it was severely limiting the team’s ability to be truly effective. I told her that although there were others, this was the critical issue to be addressed and resolved first. She listened carefully if surprised. After a bit of reflection, she agreed and the two of us had an in-depth discussion of what she wanted the team to be and how she wanted her executives to function in relationship to her and to each other.

At the retreat, during an exercise in which the CEO and the team each exchanged their perceptions of each other, the team raised the matter of the lack of clarity of team role and function. The CEO was prepared to respond and she and the team had a very candid and honest conversation about the matter. The CEO did a good job of describing what she wanted the team to be and, together with a lot of frank dialogue, they arrived at agreement about the role, scope, authority, and responsibility of the team.

Clarity of purpose matters.

Research in group dynamics and experience tell us that when any team is formed, there are questions that are commonly top of mind for new members. The questions represent a combination of natural curiosity but also personal judgment regarding willingness to engage. To the extent that each question is addressed and resolved satisfactorily, the team moves on to the next key question and so on until a firm foundation for teamwork and action is established. Three of these formational questions comprise a construct I call Clarity of Purpose.

Orientation: Why am I here?

When a team is formed, team members have orientation questions. What is this team about? Why was I selected? Who am I in this team? How will I fit in? What role will I play? These questions address matters of team identity, personal identity, and membership. Team members need acceptable answers in order for team development to continue.

To the extent that these questions are not satisfactorily resolved, an undercurrent of emotional issues that interfere with effective group development and functioning results. At this point, the undercurrent of emotional issues is characterized by confusion, uncertainty, and trepidation.

Personal/Relational: Who are you?

The second question addresses matters of interpersonal relationship and trust. Who are you? Who am I? Who are we in relation to one other? What expectations and agenda do others have? How do these fit with what I want and what I can offer? Again, answers to these and related questions must meet team members’ satisfaction. To the extent that they do, then mutual regard, candor, and trust develop.

If these questions remain unanswered, then the undercurrent here affecting team functioning consists of wariness, pretense, and doubt.

Direction/Future: What are we going to do?

The third question is directed explicitly to the matters of purpose and goal clarification. What are the assumptions about this team? What kind of team are we? What is the vision for this team? What is the team expected to accomplish?

When these questions are addressed successfully, the team gets clear about the reason it exists, the future it will chart, and results it intends to achieve.

When these questions remain unresolved, the result can stunt team development. Team member indifference, deep frustration, and infighting to try to establish direction characterize the emotional undercurrent.

These dynamics do not affect only newly formed teams as the story above shows. To the extent that these formational questions are not satisfactorily addressed, the undercurrents noted above stall a team’s development and it functions below its optimal level.

Does your team have Clarity of Purpose? Are members clear about why the team exists and the kind of team it will be? Do members understand the results it intends to achieve? Are members clear about the team’s scope and authority and what the team is answerable and accountable for? Or are members searching for answers to these and related questions and, as a consequence, the team is functioning below where it might?

If clarity of purpose is a matter at issue for your team, Performance Development Associates can help. Visit pda.us.com to learn more.

• Teams are the building blocks of organizations
• Effective organizations are a function of effective intra and inter-team relations
• Effective teams are a function of effective interpersonal relations

The first point comes from an overview article on Organization Development that my colleague Jack Sherwood wrote. It’s a simple but very powerful idea that organizations are not large, uniform entities – monoliths. They are instead a collection of teams differentiated and then re-integrated in meaningful ways to cooperatively produce an intended outcome.

The second point is a logical extension of the first. If teams are the building blocks of organizations, then organizational effectiveness is due, at least in part, to effective intra (within) and inter (between) team relations. If individual teams are working well and are, in turn, working well with other interdependent teams, then the organization works more cooperatively and an essential condition for organization success is established. This is critically true of the executive team.

The third point extends the logic one step further. Teams are comprised of people and human dynamics are at the center of everything teams do – planning, communicating, making decisions, solving problems, executing work, etc. To the extent that teams function at a high level, then the quantity and quality of communication, well-reasoned decisions, insightful problem solving, and thoughtful planning and execution follow.

What makes interpersonal and team relationships at all organization levels effective? In a single word, the answer is trust.

Two statements written years apart capture the essence of trust differently from most dictionary definitions but are more germane to the context addressed here.

Stephen Covey offered this perspective on trust:

“Trust is the glue of life. It’s the most essential ingredient in effective communication. It’s the foundational principle that holds all relationships.”

Many years earlier, the journalist and essayist, H. L. Mencken, wrote:

“It is mutual trust, even more than mutual interest, that holds human associations together.”

If trust is the glue of life and holds human associations together, then it is a property of interpersonal and team relationships to which leaders and managers across an organization must pay explicit attention.

A great deal of research has been done on the matter of trust over the last several decades and that research describes a number of relationships that go to the heart of effective organization functioning. The essence of that research, greatly distilled, is summarized here.

Trust covaries with properties of interpersonal and team relations that are essential to effectiveness. To co-vary means that two variables move in the same direction together. As one increases, so does the other and vice versa.

In the most general terms, trust covaries with:

• Interpersonal openness – the higher the level of trust between two people or within a team, the greater the level of meaningful disclosure
• Willingness to take risks – the higher the level of trust between two people or within a team, the greater the willingness to make oneself vulnerable and take appropriate risks
• Owning behavior – the higher the level of trust between two people or within a team, the greater the willingness of individuals to own up to and take responsibility for oversights or mistakes

Beyond these broad strokes, the research further identifies specific dimensions of productive team and organization behavior that co-vary with trust.

In The Five Dysfunctions of a Team, Patrick Lencioni offers a related and compelling case for the importance of trust to organization functioning. Lencioni depicts a cascading progression of related outcomes within a team that can go well or poorly depending on the initial state of trust. The progression goes like this.

If there is absence of trust within a team, then fear of conflict drives inauthentic dialogue. (Think low interpersonal openness, low disclosure, and low risk-taking.) Inauthentic dialogue results in guarded behavior and artificial harmony at best. This condition leads to a lack of commitment to decisions and related plans of action. Without joint, unified commitment among the members of the team to decisions and actions, accountability is avoided and when this condition is pervasive, results are at risk. If there is high trust within a team, then the progression becomes, with a lot of team effort, a virtuous opposite.

The stakes are high for any team, but they are even higher for the executive team. The adage, “As the top goes, so goes the organization,” is nowhere truer than for an executive team.

Do you know what the level of trust is for your team? Is your team functioning as effectively as it might? How healthy are the quantity and quality of communication with your team? Do the members of your team feel comfortable in taking risks and being authentic with each other? Do they engage in critical dialogue when problem solving or when conflict arises? Do they own their missteps or mistakes without fear of reprisal because there is a climate of support and cooperation?

Performance Development Associates can help you assess the level of trust among the members of your team and help you build intepersonal trust that leads to high performance. Visit pda.us.com to learn more.