The Organization Design Difference

This series on organization design targets readers unfamiliar with the subject, illustrating how intentional design enhances performance.

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.