Written by Nic Frank and Matthew Emerson
Organisation design is more than just lines and labels or processes and systems. Approached diligently, organisation design can facilitate workflow efficiency whilst improving quality standards and ultimately customer service, advocacy and retention.
Well-designed organisations typically exhibit better worker safety, greater employee productivity and individual performance gains that result in short-term business performance improvements through reduction in operating costs, identification of growth opportunities and increased profitability,
Longer-term, organisations that are designed for adaptability and agility develop organisational health through greater resilience, preparedness and contingency for future external challenges.
One of the unintended consequences of the COVID-19 crisis has been a shift for knowledge–working organisations to more remote and virtual working. Having most employees working from home has meant that many organisation structures have unintentionally shifted away from centralised, controlled structures to flatter and more decentralised empowerment where decision making has become more distributed across the organisation but coordinated centrally. This trend was already prevalent across technology and smaller start-ups who had adopted Agile principles and ways of working that enabled flexibility, adaptability and speed. The need for adaptability has been a necessity in a VUCA (Volatile, Uncertain, Complex and Ambiguous) environment created by exponential technology development, the rise of populist politics, climate change and interconnected economies more sensitive to a global system. This situation may have been amplified by COVID-19 and while it will eventually return to some level of normality and greater certainty, because of the more complex environment we all live and work in, it is a trend that is expected to continue over the next decade. Quite simply, more complex solutions become needed for more complex problems.
Historically, in a physical office environment, leading through authority and more traditional ‘command and control’ hierarchical structures were easier and more straightforward — you can simply provide direction by instructing people what they need to do. In a more decentralised environment, different organisation structures and the accompanying leadership skills will be required for a company to be effective. A highly recommended summary that covers this shift to more decentralised leadership structures is covered in Stanley McChrystal’s excellent book, Team of Teams.
Continuous Improvement: Organisation design and redesign
While this recent need for organisation redesign has been imposed on organisations, it is good practice for organisations to be continually reviewing their organisation design so that it is fit for purpose and sufficiently adaptable and resilient to move and meet the challenges posed by business realities in the form of market changes or new client needs and demands. Organisation design is a process that, with intention, shapes the way that organisations are structured and run so that they increase the likelihood that collective efforts will be successful. It covers many different work aspects such as job design, team organisation, reporting lines, decision–making authority and communication channels. In the current environment and for companies operating globally 24/7, it may also include shift patterns. It involves initial design, often using tools and approaches from Design Thinking, but as stated should not be a static activity but instead a process of continual redesign. An effectively designed organisation is best structured and aligned to achieve its unique goals, as outlined by the strategy. Consequently, there is no ‘best practice’ design but only that which best supports the goals and strategies of the specific organisation.
Effective organisational design
A current challenge facing organisations is that while technology can scale exponentially, humans cannot and never during history have we been required to coordinate or collaborate at the scale or speed required now. Consequently, how the organisation is designed is very important to enable and support technology. A well–designed organisation, like any well-designed product, has many benefits that serve to support the business goals, enable and align employees so that their contribution and performance can be leveraged optimally, and match the structure well to the context that it operates within to serve its customers and have the edge on competitors.
Effective organisational design ensures:
- problem solving and decision making are timely and targeted;
- clear direction and strategic alignment, reducing time and effort wastage;
- coordination and collaboration, avoiding organisational fragmentation;
- clearer ownership and accountability, empowering employees to contribute to their fullest;
- improved employee morale and reduced turnover and absenteeism;
- mitigation of any regulatory or conduct risk associated with employee behaviour;
- business performance targets are achieved.
More often than not, organisation redesign tends to be a reactive, rather than a proactive, process that is triggered because of an internal recognition that the current design is not generating optimal business results or that (new) senior management implement a new strategy (and goals). Alternatively, change is driven externally by market, industry or regulatory drivers. In large organisations, the experience of reorganisation can feel like a perpetual process where changes are often made when senior management shift the strategy of the organisation to be product-driven, customer-centric or simply alter the structure to change how people make decisions, adopt new behaviours, reward performance or manage information and communication.
Types of organisation design
Simplistically, the design of the organisation traditionally tends to fall across a spectrum of types including:
- Hierarchical with different levels of management, power or authority. Design typically involves grouping together based on factors such as the function that is provided to the organisation (e.g., Finance, Operations, Commercial (Sales and Marketing), HR or various admin shared support groups). Alternatively, by geography based on region or location (e.g., city or country level depending on the footprint of the company). Lastly, by division where design of the company is based around the product or service if it produces multiple products or offers different services to customers. This traditional top-down management system is still prevalent in most companies.
- Matrix where the reporting relationships are set up as a grid (or a ‘matrix’), rather than in the traditional hierarchy. A matrix structure combines elements of the functional and divisional models and is therefore more complex. People may be grouped together into functional departments based upon either similar skill set specialisation and/or separated by divisional projects and products that have common goals to achieve a specific, discrete work outcome. Consequently, employees may have 2+ lines of reporting. Employees may have greater than one manager for reporting purposes (often referred to as solid line and dotted line reporting) to accommodate both functional and geographical reporting lines.
- Simple, Horizontal/Flat(ter) design is mostly adopted by SMEs and early stage start-ups. A defining characteristic is that there are few hierarchical levels and therefore most levels of middle management are eliminated. Employees rely largely on peer-based decision making because management is rotating and largely decentralised (i.e., there is normally not a day-day manager). This removes bureaucracy and can consequently enable employees to make decisions quickly and independently.
More recently, with greater globalisation, there has been the emergence of ’flatter’ designs such as team-based or network designs. Although these are often more complex, they tend to be more agile, flexible and adaptable because they have fewer hierarchical tiers. Furthermore, employees experience greater autonomy because authority for decision making and problem solving is more decentralised. These designs rely heavily on effective, open and direct communication, and cooperative teamwork and provide the potential to support employees with greater autonomy and accountability that drive engagement and productivity.
Team-based are where teams are working towards an overarching common goal while working on their individual tasks. They are less hierarchical, tend to be temporary and they have flexible structures that reinforce problem solving, decision making and teamwork.
- Holacracies — or sociocracies — are based around four primary practices:
- Decision making by consent. Decisions are made only when no one involved knows of a significant objection against a proposal. A ‘round’ process operates that ensures that each reasonable objection is included in the discussion.
- Organisational structures linked by circles. The organisation’s hierarchy is made up of semi-autonomous circles (teams). The design has hierarchy, but that the hierarchy is not configured as a top-down, single-reporting line manager chain-of-command model. The circles are defined as semi-autonomous because the needs of both the higher-level circles and lower-level circles need to be considered in all decisions.
- Double-linking. In each circle one person is elected by the lower-level circle to represent them in the higher-level circle. One person is chosen by the higher-level circle to take overall accountability for the lower-level circle’s performance results.
- Elections by consent. There is a clear and defined process for nominating, discussing, and electing individuals to roles.
As stated, there is no best design and the designs made about organisation design will involve trade-offs between reporting complexity, formality, participation and communication. These trade-offs will also manifest in varying degrees of innovation, engagement, cooperation or collaboration, flexibility, adaptability and resilience.
Approaches to organisation design
Organisation design seeks to ensure the effective integration of the social, procedural, technical and operational aspects on an organisation. This includes improving how workflows, processes, structures and systems deliver the employee and customer experiences you intend. Undertaking organisation design involves a step-by-step, comprehensive and multi-level methodology, such as Galbraith’s STAR model or the 5 Milestone Organisation Design process. These typically may consider aspects such as:
- current state assessment;
- the business purpose, strategy and priority goals;
- the capabilities needed to execute the strategy;
- processes to build people skills, competencies and capabilities;
- core business processes and systems;
- metrics and rewards;
- the structure (how to organise) and alignment of the organisation’s goals, including boxes and linkages, as well as job design and roles and responsibilities;
- leadership capability;
- strategic cultural narrative (values, behaviours, principles etc).
More recently, Design Thinking approaches towards organisation (re)design take a ‘human–centred’ approach to optimise how people work together and adapt to change. They put the user at the centre for designing successful products, the customer at the centre for designing successful business services and the employee at the centre to facilitate employee experiences that exceed expectations and serve customers. They seek to understand the impact of the design on large groups of people through a lens of care, compassion and moral/ ethical intent.
In redesigning an organisation, it’s helpful to use an agreed set of guiding principles to facilitate good and robust design. It is equally helpful to avoid chasing fad or popular solutions that may not be best fit for your purpose. Design with an objective understanding of your organisations current state and cultural DNA but detach from the past and allow employees to participate in design freely without over reliance on what has come before. Delay drawing out your organisation structure until you have finished designing and draw out models that can be adapted to scenario’s rather than as a fixed chart. Fundamentally, the outcome should demonstrate clear alignment with strategic priorities.
In addition, if you decide to embark on an organisational redesign it is also likely a change initiative that may encounter employee resistance because of ’loss aversion’, whether that be pride, control, familiarity or competence. There is consequently a need to prepare and overcome resistance to change and/or change through a clear case and vision for change, including the emotional journey to come, enabling quick wins and share control across the process.
Blackmore Four are a management consulting company, offering specialist advice and tailored solutions to businesses looking to sustain or improve the effectiveness of their organisation. Our approach is based on a deep understanding of human behaviour at work and an ability to identify and address the specific leadership and organisation development needs of your business. We work with ambitious business leaders to achieve outstanding levels of performance through periods of growth or significant change.