22 Organisational Design

Niti Goyal

INTRODUCTION

An organisation structure gets developed through the process of organizing. Organizing is one of the functions of management which follows planning. Organizing provides structure to the organisation. According to Chester Barnard, “Organizing is a function by which the concern is able to define the role positions, the jobs related and the co-ordination between authority and responsibility.

According to Stan Kossen (1978), Organization Structure has to do with how tasks are to be allocated, who reports to who, who does what and the formal coordinating mechanism and interaction pattern. Organisation as a process refers to identifying the activities to be performed for accomplishment of objectives, grouping similar activities, assigning authority and responsibility , establishing accountability, and coordinating the efforts so as to achieve the business objectives. Organisation creates a structure of formal authority & responsibility relationships. Organisation brings together people, functions and physical facilities. It determines the flow of communication and flow of authority and responsibility in the organisation.

For Many people organization design and organization’s structure are same. However, the two are different. Organizational design is a broader term that encloses such an organisational structure which helps in achieving organisation’s goals. It reviews the relationship between different tasks, workflow, information flow, responsibility and authority, and make sure these all support the objectives of the business.

Thus, Organization Design refers to aligning Organizational Structure with business goals. It is both a plan and a process . The purpose of the organizational design is to create the right structure that fits the requirements of the strategy to be implemented. There is no best structure available anywhere. And also, there is nothing such as a good or a bad structure. Structures either match or do not match with the requirements of a business strategy.

Design process is a comprehensive and holistic approach to organizational improvement that touches all aspects of organizational life. It helps in achieving the business goals through:

  • Improving customer service.
  • Increases profitability and efficiency of business and hence growth.
  • Reduces the operating costs.
  • Leads to increase in employees ‘commitment.
  • Increases coordination
  • Facilities flow of communication
  • Helps fixing clear accountability

External environment has become too dynamic, complex and challenging. Structures once established, may need to be redesigned as old structures may become barriers to efficiency, profitability and  employee morale.

Poor organizational design affects efficiency and productivity badly. Despite of having great mission, great plans, good staff, motivation and leadership, etc. organisation cannot work because  of  organisation  design  as  it  restricts  the  flow  of  information,  affects  business activities, system of incentives, and there are no well defined relationships. All of these factors are facets of the organization’s design and each facet is important to organization’s success.

Take the example of a company whose two departments, production and purchase, work excellent as separate units but still the organization suffers. Since both need to communicate
regularly and work in coordination, but the organizational design does not facilitate information sharing. Hence, Company’s performance suffers as a result.

Organizations that don’t periodically renew themselves suffer from such symptoms as:

  • Poor coordination
  • Lack of accountability for activities.
  • Poor flow of information and work
  • Inefficiency in work
  • Redundant Efforts
  • Deterioration in quality of product or service.
  • Reduced customer focus
  • Blame game persists. No effort on identifying and solving problems
  • Delays in decision-making and responsiveness
  • Poorly defined Systems
  • Mistrust between workers and management

Good organizational design facilitates communications, efficiency and innovation. It creates an environment where people can work efficiently.

Principles of a Good Organisational Design:

As already mentioned above, there is no good or bad structure however, every design should also be evaluated against some key organizational principles. These are:

1.  Strategy

Structure should be such that it enables the implementation of the business strategy to achieve the objectives of the organization. Not only this, it should also support the critical capabilities that distinguish a company from others. So, the right structure for no two companies can possibly be same even if they’re in the same industry. A good organizational structure helps achieve the objectives of the organization by managing it appropriately by giving appropriate importance to activities based on their importance in achieving goals. This happens not only at the managerial level but functional level as well. The span of control and layers in the organizational hierarchy should all depend on the purpose of the organization.

2. Leverage people

Even if a company has designed an organizational structure that is best aligned with its strategy but has not employed the right people, it will fail. A thorough analysis of the current people’s ability and the current structure should be made. Also, Incentives and rewards must be aligned with the business’ strategy and purpose. When these are not aligned, then employees think more of self interest rather than the organization.

3. Cost containment

An organizational structure must help in cost containment. The organizational structure should remove redundant roles by analyzing staffing levels, span of control in the context of the businesses strategy. The total work should be divided into different sub works based on strategic relevance and most important strategic positions should be identified. Companies should try to protect them even in the most difficult times and cut costs in other areas if need arises.

4. Operate within constraints

There are various constraints within which a structure operates which put limits on companies and their organizational designs for e.g., government policies, stakeholders, finances etc. Organizational structure must be designed keeping in view these constraints. If organization structure is designed without keeping these constraints in mind, it will become dysfunctional till the constraints are removed or the structure is readjusted. For example, if consumer tastes for your product are same around the world, than a simple structure will be efficient because of single branding, same policies, and usage guidelines. But if consumer tastes for the product are different around the world, then that structure which facilitates delegation of these decision rights to the local business dealers would be effective since single branding, same polices and same guidelines won’t work anymore.

5. Accentuate the Informal

Formal structures are attractive to companies because they can be easily defined and measured and it is easy to fix accountability. Inspite of efforts to strengthen the formal structure like changing the organizational structure, or set up information systems, the results are not achieved. These gaps can be filled by the informal structure. For e.g. The disruption in flow of information within an organization because of the defect in organizational structure can be corrected by redesigning the structure which is not an easy task. There is another solution to this problem which could be very effective. The other option is that management should try to strengthen the informal social network between individuals. It will not even need the active management of a supervisor. It leads to a win win solution for both the management and employees. The formal and informal structures both have to work in synchronization to achieve the company’s result

6. Protect critical specialists

There are some positions within an organization which are strategically important and whose nature is very different from the rest of the works. Talent is a critical but often overlooked factor in designing the organization. But this should not be there. Rather, separate positions need to be designed to make the most of the strengths of the people who occupy strategically important positions. Technical skills and managerial acumen of key people should be recognized and leaders should help them in getting coordination from other people as well .

7. Optimize hierarchy

The business should align the number of management layers with its risk profile. Flatter organizational structures are more risk-tolerant than multilayered hierarchies. Larger the number of management layers, more is the tendency of data getting screened as they go up the chain. As a result, those at the top of hierarchy will have fewer decisions to make and will be presented with fewer options that have been more thoroughly analyzed. Therefore, the multilayered hierarchy will make fewer mistakes but will also miss more opportunities, and will take longer time to make decisions. but this is not the case with the flatter organisation. However, each structure has its own merits and demerits. But the number of levels should match the requirement.

8. Clarify decision rights and responsibilities

The right to take Decisions rights should be made clear. Information and decision rights has the strongest effect on improving the execution of strategy. When decision rights and motivators are established, its gets easy to establish clear accountability. Responsibilities and the rights of taking decisions regarding them should be given to them who have the requisite knowledge and skills or from where the skills can be assembled most inexpensively.

9. Strengthen accountability

If supervisors cannot assess their subordinates’ performance, they will not be able to exercise adequate control. A good organizational design strengthens accountability for work. Organization should be designed in such a way that it is easy to fix accountablility for work which were assigned and information flows rapidly and clearly to the top management. Establishing decision rights and motivators helps in clarifying accountability .

Less number of organizational layers and speedy flow of information also helps in creating accountability. Greater the span of control, less are the number of layers. The span depends on the nature of organization, amount of supervision , and degree of automation used .for e.g. In a organization such as a call center, span can be wider since work is general in nature and heavily automated. But in an enterprise where specialized knowledge is required such as software development team, span would be narrow as greater control is required.

10. Improve innovation and flexibility

The market environment is unpredictable. So, the organization design must be flexible enough to adjust to it. The factors which restrict a company’s flexibility and innovation exist at organizational level, and in the design of individual roles. Undue complexity and interdependence in a company’s organizational structure restrict its flexibility because of the rippling effect on many more interwoven individuals than under separated structure. At the individual level, nature of job can be a barrier to innovation if the role responsibilities do not vary enough and due to work pressure, the individuals have less time and energy for anything else than the task at hand.

11. Not to adopt any design as Benchmark

One of the common mistake while designing an organizational structure is to look for the best organizational design practices. It can be helpful in theory  to track the competitors or may help you optimize your own design but by doing this you might not be able to get an optimal structure since following the competitors structure, an organization will ignore its unique capabilities. For example, two companies might be producing same product but one caters the need of youngsters at national level and the other caters the needs of every age group . These two companies would require different organization designs. If one set up a wrong example as benchmark, you might land nowhere.

 

Organizational Design Process

The design process creates an effective organization that helps in implementing the strategy and get desired results of the organization. The first challenge is to design an effective structure that helps in achieving the objectives and the second challenge is in its implementation.

The two methods through which design process can be set up have been discussed here:

1. The conference method: Under this method, a significant number of employees can directly participate in the design process. Top management through conferencing with employees can get their participation in real-time design, analysis, and implementation sessions. This gives them a sense of commitment and ownership to new design process. This method does not consume much time in designing as problems can be identified easily and design and implementation decisions can be made quickly.

2. Core design team method: under this method smaller number of employees can participate in the design process but still commitment and ownership can be stimulated throughout the organization by regular communication to the rest of the organization. Here, a team is made by senior management from the members of the organization who analyze, redesign, and develop implementation plans and present it to the senior members and the rest of the organization for approval and adjustment. The advantage of this method is that the design team can make a deeper analysis of the facts but this method is more time consuming. With either the conference method or the design team method, the basic design process remains same which has been as follows:

1. IN-DEPTH PROCESS ANALYSIS

As a first step, an assessment of the organization is made to prepare for organizational redesigning. All the work processes and information flows etc are analysed in detail. After an overall initial analysis is over, a further deeper in-depth analysis of the processes which are critical to the organization is made before design decisions are made regarding them. If some other systems or structures which need to be understood better, they are also analysed in detail. In-depth analysis can take from a few days to a few weeks, depending on the need for more data and no haste should be made in such an analysis.

2. ORGANIZATION DESIGN

During this session, new design is deliberated upon. The participants give recommendations as to what design, process, structure, workflow, resource allocation , communications strategy, recruitment and selection, training, performance management, and rewards and other parameters should be followed to align the organization with current strategies and business demands. Thus an outline of the new design is prepared. Some portions of the ideal design are chosen for implementation on a startup organization which is to test the new design before the actual design is implemented.

3. TRANSITION PLANNING

After the design recommendations of the startup have been accepted, both transition and implementation plans are developed. Transition phase may vary from two weeks to six months depending upon the size of the organization and its complexity. . Transition is a period of time between design and start up. Implementation is the period of time between startup and the ideal organisation. During transition planning, participants identify all transition activities such as employee communication, leadership training, or staffing changes necessary for successful implementation of the startup design throughout the organization. Implementation tasks are also identified at this stage.

After identifying transition and implementation activities, participants prepare a sequence of these activities along with time line for each activity. Thus, action plans are developed at this stage.

4. TEAM DEVELOPMENT AND EMPOWERMENT PLANNING

Individuals or teams are considered empowered when they are clear about expected results, expected behaviors, authority levels, and time constraints and are equipped with skills, resources, and support they need to achieve their objectives. Thus, Empowerment planning is identifying the boundaries, skills, resources and support that teams need . Empowerment planning is done by middle management and team leaders. This session takes one or two days to complete. This step is often skipped to speed up the process but it important since only after this exercise, it becomes clear about what is truly expected from the teams and what is needed to support them. A well defined team development and empowerment plan serves as a roadmap for team development and success.

5. NEW DESIGN IMPLEMENTATION AND FOLLOW-UP

The purpose of transition phase is to test the working of the new design and find out the gaps if any and to remove them and to get prepared for the changes that the new design is going to bring. It is during the transition period that new structures, processes, policies, and plans can be explained to prepare for implementation. During implementation, the organization breaks from the past and begins to function in the new design. New reporting relationships begin to work, resources are re-allocated, and new policies and procedures are adopted and an all new way of operating begins. Successful implementation requires continued follow-up especially during the initial stages. Active participation of leaders can be of great help. Their leadership skills may be enhanced by giving them training in this regard to secure better cooperation and less resistance. Active involvement of senior management is must. Implementation phase is not a day’s event . It is a process which may take months to fully implement the ideal design.

6. TEAM STARTUP AND DEVELOPMENT TRAINING

Startup training is given to bring teams together and to tell them what they must accomplish in the new design and how to accomplish it effectively. Teams are given training in the technical, business and social skills required by them to manage their task and improve their performance. Leaders explain team development plans to their teams and discuss how those plans can be implemented over time. The training provided depends on the development needs of each team. It is always better if organizations invest in their own training staff who can provide ongoing planning, assessment, and delivery.

7. ADJUST AND REFINE COORDINATION AND DEVELOPMENT SYSTEMS

Coordination systems include systems such as communication and information sharing, feedback and policies and procedures etc. Development systems include recruitment and selection, orientation, training and development, promotion, performance evaluation and feedback, compensation, reward and recognition. During the start up time these systems have already been implemented. However, some of the systems may require adjustment or redesign and thus further input for development of appropriate implementation plans are required.

During startup, a task force for each of the key coordination and development systems that need continued review and adjustment had been developed. Each task force studies, makes recommendations for appropriate adjustment or redesign of their designated system, and then guides and monitors implementation of that system throughout the organization. These systems may continually need to be refined and implemented until the systems get effectively integrated into the new organization design.

Fig 1 gives an illustration of the organisational structure that company XYZ had initially adopted. They realised that they became unresponsive to customer’s needs . So they redsigned their structure. And fig 2 is the redesigned structure .

Fig 1: Pre-design Workflow

 

Fig 2: Post-design Workflow

Source: www.centerod.com/2012/02/what-is-organizational-design/

In fig 1, illustrates an organisational structure that has been created on the basis of functions In fig 2, after redesigning, the company’s structure has become cross-functional. A number of people from different departments have been combined into teams that were given full responsibility to manage customer orders. Thus after redesigning, company sales increased by 50% and profit margin also increased.

Summary

Organizational structure enables the performance of activities in line with the company’s strategy. The purpose of the organizational design is to create the right structure that fits the requirements of the strategy to be implemented. All organizational components such as people, process, technology, structure, should be aligned with the strategy and coordinate with one another. There is no best structure available anywhere .And also, there is nothing such as a good or a bad structure. Structures either match or do not match with the requirements of a business strategy. At each stage of growth or change, the organization design needs to be assessed and aligned as necessary. It should create decision rights and clarify responsibility. One should not use any organizations’ structure as benchmark as each organization has its own unique capabilities and that structure may not allow you to align with strategy while maintaining your core competencies.

 

References:

  • Jay Galbraith, Diane Downey and Amy Kates , Designing Dynamic Organizations: A Hands-on Guide for Leaders at All Levels
  • Jay R. Galbraith ,Designing Organizations: Strategy, Structure, and Process at Business Unit and Enterprise Level
  • Michael Goold & Andrew Campbell ,Designing Effective Organizations: How to Create Structured Networks
  • Jay R. Galbraith , Designing complex organisations
  • Amy Kates ,Designing your organisation : Using the Star Model to Solve 5 Critical Design Challenges