5 Essentials to Effective Organization Design

Is your organization suffering from low productivity? Do you have high employee turnover? Are communication breakdowns experienced on a regular basis? Do growth objectives seem unattainable?

If you have answered “yes” to any of the above questions, the diagnosis to what ails your business may be poor organization design. When an organization structure fails, it negatively impacts almost every synapse and output—from the time new work or projects are initiated down to bottom-line profits. Effective organization design is crucial to overall organizational health and can literally mean life or death for your business.

First, let us state that there is no “perfect” organization design. Every model, no matter how enduring, has a list of cons to match its list of pros, and every organization redesign is met with some level of struggle. The truth is that the best organization designs are simply a series of choices that leaders have made in order to optimize the execution of business strategies. Things like efficiency and decision making should always be considered, but if your organization isn’t delivering on the fundamental goals of the business, perhaps it’s time to implement a new structure.

We have discovered five key ideas that executives can use to increase the probability that their organization design will support the execution of their strategy.

Start with strategy
Because many companies believe their strategy is solid and all that’s required is the “right organization” to make it come to life, everyone wants to begin by drawing boxes and lines. But the process needs to start with a deep review of strategy and its implications. You must be very clear on what you are trying to achieve as a business, and make sure your objectives and goals are linked to your vision and values. These impact how your organization design will be accepted in your culture. Carefully assess how trends are likely to evolve in the future to understand how your business, and the new structure you’re planning to implement, will need to change over time.

Your strategy provides you with criteria to decipher the critical work you must do and, more importantly, the work you won’t be doing. According to a 2014 PwC survey, 42% of executives felt that their organization was not aligned to their strategy and that some parts of the company don’t understand it or are actively resisting it. Being clear about the reasons for each choice and mitigating associated risks will improve yours odds of a successful implementation.

Define the capabilities required to win
Like the coaches of any winning sports franchise, business leaders must consciously build or buy the capabilities required to successfully execute the business strategy. These capabilities should include both people and processes because the easier you make it for your employees to execute, the more successful you will be. For each core business process, decide whether you need to perform better than your competitors, on par with your competitors or simply at a minimum standard for compliance with industry rules and regulations.

Dispassionately assess the current performance level of each core process. Where performance is less than desired, create a specific plan to build or buy the required capabilities. Where performance is better than necessary, redeploy resources to higher priority processes.

Involve those who will be impacted
Many executives see organization design choices solely as a task for senior leaders. Time and time again, we have found that enlarging the circle of involvement yields better designs and better execution. By creating a small team across a variety of layers and experiences, you open the design process to valuable insight. People who will actually do the work can “pressure test” the design and identify gaps early. Although it is not always easy for task-level employees to deal with the ambiguity of significant change, we have found that those same employees offer some of the most useful insights.

Employees understand what a privilege it is to be on the design team and we typically see them put aside individual concerns and rise to the challenge of doing what’s best for the company. Trust them and they will deliver.

Align metrics & rewards
Once the new organization design is complete, it’s critically important to align the business metrics and reward systems to be congruent with the business strategy and the organization design. We recently worked with a client who wanted to foster much more cross-functional collaboration. After launching a new organization design, they were initially disappointed with their results. Further analysis revealed that they failed to adjust business metrics and rewards systems to send messages that were consistent with the new organization design. They had been a functional organization with mostly functional metrics, with almost no “enterprise” success metrics that employees could relate to. Further, their reward systems rewarded individual heroics. Once the leadership team adjusted metrics and rewards to showcase a balance of functional excellence and cross-functional collaboration, employee behavior shifted quickly.

Have a clear implementation program
The design you select will require new ways of working. Structures with boxes and lines look simple on paper, but our complex world requires interaction that goes beyond reporting relationships. Often, companies pay a lot of attention to communicating a new structure rather than helping employees understand how to effectively operate within it. Implementation plans will help employees reconfigure the systems, processes, data, roles and governance that need to change to fully enable the new structure.

Implementation provides another critical opportunity to engage your best talent in the change process and let them bring the new organization to life. These change agents will become cheerleaders for the new design and help the executive team find some early wins.

Illustrated below is our approach to organization design that encompasses both design and implementation. This process has successfully guided many clients through the complexity of organization design.

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Equipped with this process and the five key ideas presented above, you can increase your chances in developing a successful organization design that does exactly what it is intended to do—deliver the strategic goals of the business.

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