Why Organization Design Matters: Part 1

This is the second in a series of posts on organization design. This one will be the first of five to address the title topic of Why Organization Design Matters. Directed at organization leaders who may be unfamiliar with the concept or its potential benefit, these discussions aim to shed light on how intentional design can significantly enhance organizational performance.

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. Focus on Priorities: A well-designed organization channels member efforts toward the most critical areas, ensuring that resources are allocated efficiently and effectively.
5. 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.

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.