Organisational design

10 Principles of Organisational Design

27 Jan

Post by Camilla Bundy

Posted in: Business Development Consulting, Human Resource

10 Principles of Organisational Design

Organisational design

Within most companies, top management tends to foresee organisational problems on the horizon. Some of the common signs are – a lack of coordination, non-accountability for actions, a poor flow of information, slow decision-making, and destructive conflict.

Organisational design ensures that, in terms of performance, work activities are in line with the company’s strategy. This is applied at every level of the organisation – from corporate layers to functional subunits. To plan an effective design will require trade-offs at all levels. In addition, there is never a single best design for any company or function. All designs have inherent strengths and weaknesses, and all companies have different capabilities and strategic positions. Therefore, good organisational design is finely tailored to deliver the company’s competitive strategy through enabling its work activities. The design can be evaluated with specific criteria – these include the strategic initiatives and critical operational capabilities it should enable.

In 2014, during the 18th annual PwC survey of chief executive officers (CEOs) many CEOs anticipated significant disruptions within their organisations over the course of the next five years, due to external worldwide trends. As CEOs look to stay ahead of these disruptions, they recognise the need to modify their organisation’s design. But for that redesign to be successful, a company must make its changes as effectively and painlessly as possible – in a way that aligns with its strategy, invigorates employees, builds distinctive new capabilities, and attracts customers. Although every company is different and there is no set formula for determining the most appropriate organisation design, here are a set of ten guiding principles to keep in mind. These principles point the way for leaders whose evolving strategies require a different kind of organisation than the one in place at present.

1. Let go of the past

First of all, the organisation needs to reflect on, but also let go of, the past. This is essential if the company is to reassess its sense of purpose, how it makes a difference to clients, employees and investors, and how it can grow and develop over the next two to five years.  Focus on the way forward, instead of blaming or attempting to justify the design in place at present or the designs of the past.  This helps to keep the goals of the new design and strategy in sight.

2. Building blocks of change

While this process can seem complex, the right framework can aid in decoding and prioritising the necessary elements. These eight universal building blocks are relevant to all companies, regardless of industry, geography or business model, and are the elements an organisation should use to put together the design. Keep in mind that too many changes simultaneously can cause negative side effects – instead, pick three to four changes to deliver more positive initial results. .

3. Design structure last

The organisational chart is a powerful communications vehicle that bears emotional weight because it depicts relationships that employees might value or resent.  Company hierarchy tends to revert to its earlier equilibrium when changes in the organisational chart are made in isolation from other changes. Removing management levels and reducing costs becomes merely a short-term gain because the hierarchy tends to creep back in sooner or later. An organisation redesign isn’t about setting up a new structure in one go. It is a sequence of interventions to lead the company from the past to the future. Structure needs to be the last part of that sequence, otherwise the change won’t sustain itself.

4. Utilise top management

Positions in the organisation should be designed to optimise the strengths of each employee. Consider the technical skills and managerial acumen of key people and make sure those leaders are equipped to foster an empowering and collaborative spirit within their team.  Ensure an optimal span of control for senior positions, while assembling the leadership team during the redesign.

5. Focus on what you can control

List the things that hold your organisation back – the scarcities (things in short supply) and constraints (things that slow you down). Taking stock of real-world limitations will aid in executing and sustaining the new organisation design. Constraints on your business cannot be controlled and it’s important to remember not to get bogged down in trying to change what cannot be changed; instead, focus on what can be changed.

6. Promote accountability

Design your organisation so that it’s easy for people to be accountable for their work without being micromanaged. Ensure that decision rights are clear and that information flows smoothly from the executive committee to business units, functions and departments. Once decision rights and motivators are established, accountability evolves naturally – people will become used to following through on commitments without formal enforcement. However, this accountability needs to be continually nurtured and promoted, even once it becomes part of the company’s culture.

7. Benchmark sparingly

Theoretically speaking, it can be helpful to track what competitors are doing in order to optimise your own design. Practically, however, this approach ignores your organisation’s unique capabilities, as well as the strengths that produce results, which others can’t match. It’s unlikely that you and your competitors need the same capabilities, even within the same industry. If benchmarking is necessary, focus on a few, then select appropriate peers for each. Your choice of companies to follow, and the indicators to track and analyse, should line up exactly with the capabilities prioritised at the start.

8. Find the golden mean

Each company has an optimal pattern of “lines and boxes” – a golden mean. It isn’t the same for every company, and should reflect the strategy chosen, while supporting the most critical capabilities that make the organisation unique. This means the right structure for one company will differ from another’s, even if they’re in the same industry.

9. Pay attention to the informal

Formal elements like structure and information flow are attractive to companies because they’re tangible and can be easily defined and measured. Many companies reassign decision rights, rework the organisation chart, or set up knowledge-sharing systems without seeing the expected results. This is because they’ve ignored the more informal and intangible building blocks. Norms, commitments, mind-sets and networks also need to be taken into consideration. They represent and influence the ways in which people think, feel, communicate and behave. When the intangibles are not in sync with each other or  the tangible building blocks, the organisation fails to work as it should.

10. Build on your strengths

An organisational overhaul is one of the hardest things for a CEO to do, especially if their task is to turn around a poorly performing company. But, there are always strengths that can be developed within the existing practices and culture. Focus on these strengths, whether formal or informal, to help to fix the critical areas that you’ve prioritised. Set up focus groups to talk about the problem areas and reinforce the strengths with a rewards system. This will help to develop a positive atmosphere within the company.

We’ll be investigating the challenges for HR at the Working Futures event on 23rd March at the Business Design Centre, London – to register please contact Clive Frake, Tel: 0203 752 525