Organisational design is experiencing somewhat of a resurgent focus on agility; for companies of all sizes and sector specialities. In essence, org design is the process of aligning your strategic vision with the internal people, tech, and process structure needed to achieve your ambitions.
Even though a version of this practice, originally developed for software companies, was theorised in the 1950s, it gained more prevalence in the 1990s, and it has been increasingly codified since the 2010s.
In a 2016 Deloitte survey, executives listed organisational design as a top priority (92%), more than engagement, leadership, and culture.
Now, agile is currently the solution in vogue as much as complex matrixed organisations were a few years ago. However, before deciding on a structure, every organisation gains to return to the basics. Companies that want to start an organisational design project and partake in organisational change need to consider the process of;
Finding or redefining a compromise between where they want to go (i.e. defining their strategy).
Considering how they will organise the resources at their disposal (i.e. the organisational structure and their technology infrastructure).
Understanding the set of incentives and spaces allowing people to achieve their goals (i.e. everything else, including processes, the company culture and its incentives, etc.).
Any project aligning or realigning those three dimensions usually calls for transformation expertise during the org design process.
What is organisational design?
An organisational structure is only one element of a transformation project. There are some components a company needs to decide on before sticking to one specific organisational theory.
In the same way that digital transformation can prove fruitless if not attached to a larger strategic reorientation, an organisational design project intervenes when companies are looking to change the way they operate.
Giving a direction to that change is one of the most challenging parts of any restructuring. Change can be engaged at the global or local level, for the whole company or specific functions; change can also be the result of M&A strategies (Mergers or Spin-offs).
The process of defining change and implementing it follows similar phases: Strategic definition, alignment of objectives with the strategy and a roadmap for implementation. This is regardless of the level at which change is taking place and the complexity of the transformation it generates.
The outcome at each of these levels will determine what is most associated with changing organisational structure and design:
The type of structure a company should prefer (Hierarchical, Matrixed, Agile) is normally a function of the strategy that was decided beforehand.
Digital transformation is a consequence of an analysis of the technological “backbone” that a new company needs.
Company culture is the logical output of a decision on structure, incentives, and the technology infrastructure.
However, it’s important to note that the above aspects happen within a larger process, and they are consequences rather than the beginning or end of an organisational redesign.
Although a definitive answer might seem tempting and most articles on org design follow this approach (e.g. pros and cons of different models, a framework for transitioning to a specific way of organising companies), this can be misleading.
Instead, a view that posits what type of interventions are possible at each step of a transformation project clarifies what firms require, what is common practice, and what is available to them. In essence, org. design should be unique to each organisation.
Organisational design projects align a company’s strategy, its rulebook, and its organisational model.
However, organisational change management doesn’t have to feel like a laborious process. By working with an external consultant, companies can enjoy the benefits of specialised expertise as well as an objective point of view. Contact Freshminds for even more information.
What are org design principles?
1) Honing a strategic reorientation with primary and secondary data
The strategy-defining process usually has two steps. First, it requires an identification of the impact of a specific risk, and secondly, an agreement on the best ways to address that risk (i.e. setting the strategy).
However, sometimes a reorientation is required for companies that already have a defined strategy. Like Segal says, “strategy work should be episodic” to align with changing or previously ignored internal and external factors.
Internal factors: are usually brought up proactively and follow the identification of a specific problem or a nascent trend on which a company can capitalise.
External factors: are raised by the top management reactively to alert of a specific industry trend that the company is not considering and that risks reducing any of their key internal performance metrics (competitiveness, margins, market share, etc.).
These two types of drivers can easily coexist and may push senior executives to ask for external help.
Scenario 1: Routine inspection
Scenario 3: Process assessment
Scenario 2: Competitive review
Scenario 4: Reorganisation
Table 1. Methodologies for validation of organisation design hypotheses by urgency of scenario.
The identified risks within a company can be broken down into the above scenarios and activated based on the complexity and estimated impact on an organisation.
Scenarios that are estimated to have relatively little impact (1-2) on the performance of the organisation or of large groups within that organisation normally involve internal audits or benchmarking of competitors’ existing strategies.
This translates into some workshops with employees to address nascent concerns or competitor benchmarking. These scenarios can lead to marginal operational transformation and estimations of the competitive risk but mostly do not translate into large reorganisational efforts.
Initial research or internal alert mechanisms that identify risks with more considerable potential impact (Scenarios 3-4) involve senior executives directly and require a more comprehensive suite of research and strategy-defining methodologies. These processes typically demand a series of workshops with the internal leadership of an organisation as well as more robust data analyses and internal audits with employees and senior management. On the external front, these projects mobilise more thorough research methodologies (e.g. Organisational design analysis, financial estimation of risk and expert interviews).
New solutions are constantly being developed in this field. One of the most promising is the usage of networks of experts to organise not only one-to-one conversations but rather panels of experts to provide best-case scenarios based on specific problems and business cases. This tactic is used by senior executives to have an informed outside view allowing them to validate their working hypotheses.
Once the risk (or the trend to be taken advantage of) is identified, the second step is to establish a strategy to answer that concern. Typically involving senior executives within an organisation, this step builds internal buy-in for a transformation and translates into a master strategy agreement to be implemented. It also creates a series of questions to be solved and strategic objectives to be addressed.
2. Aligning objectives with the strategy
The next step in the transformation process is internal and requires conversations with the executive team and company employees.
The preferred methodology for this stage is the workshop, and it demands people experienced in organisational transformation. During the previous step, external help involving strategy and research expertise can be useful. However, operationalisation demands expertise in the field at this point in the process. This initial planning can take from 6-9 months in large organisations, as it requires input and consensus building from a variety of partners and touches on many topics within the organisation.
There are several frameworks that can be followed at this step, but for clarity’s sake, this presentation will limit to two. These frameworks translate a strategy into a structure that deals with similar issues and tries to knot comparable elements. The first one attempts to align the Structure (agile, matrixed, hierarchical, i.e. by functions), Processes (i.e. teams/functions in the company), Metrics (a definition of key KPIs), Rewards (incentives for attaining goals), and People (an HR strategy). The Jay Galbraith Star Model can be seen below:
The alignment of these 5 elements requires trade-offs resulting from the internal debate within an organisation. There can also be many theoretical structures that are never finally implemented but that act as reference points for the path of transformation that is ultimately decided.
The second framework is similar. It tries to balance Structure, People (including rewards and HR strategy), Processes (including Metrics) and Technology. This framework is helpful for projects where a redefinition of the technological “backbone” is needed. That is when a reorganisation of the company needs to be implemented alongside a digital transformation process. Below is an example of Mckinsey’s agile framework.
In this case, it is useful to combine these two processes and ensure the strategy is aligned with the processes, the structure and the technology used for reaching those goals. For instance, the premise of an agile company is that the most basic units can be given budgetary autonomy because they can be tracked more easily.
As mentioned before, although culture is a fundamental part of any of these decisions, it is primarily a consequence of the interaction between the processes, the rewards and the people strategy a company puts in place. Saying this does not mean that culture transformation projects are an empty exercise, but rather that they involve a re-alignment of the rewards and the people’s policy with the strategy. Culture is a function of the strategy rather than the opposite.
Following up on previous remarks, this is the stage where the type of structure is decided. This is where, if need be, an expert in agile implementation could be asked to join the team. This is also when discussions on the number of agile cells needed (Cross-functional, self-managing teams, flow to work pools) and the road to Agility can truly be built.
3. Roadmap for implementation
Implementation also has a wide variety of flavours. We will touch here on two popular designs; the 5 milestones design process and a road to agile.
The 5 milestone design process builds a sequence of tasks from creating the business case, based on the initial discussions, to transitioning the organisation. This framework merges the operational and implementation phases described in this article. For instance, the steps from Kates Kesler are:
Business case and discovery: Define the problem to solve.
Strategic Grouping: Selection of structure to bolster the strategy.
Integration: Define teams and hierarchies within them.
Talent and leadership: Create and staff critical roles.
Transition: The start of the transformation; this process requires course correction and measuring progress if the transformation suffers from any issues.
The framework focuses on creating internal buy-in from the senior leadership and allows for interaction and rectification on the implementation once the power relationships and the work of the executive team have been defined. This can be supported with continuous interaction from any external provider, who is usually embedded in the organisation for the whole duration of the process, and which can last for several months for large organisations.
The second framework is around creating an agile organisation. It is an iterative model, and therefore implementing agile is an ad-hoc exercise. However, there are 3 main roads available to the company desiring to implement agile.
The first road is to be born agile.
This is more challenging for larger organisations but can be done for new teams within the organisation or with new groups within that organisation. A second road is a stepwise approach. This is a more prudent way of moving towards an agile organisation that phases it out through teams and revaluates at each step. The third is an emergent solution and requires independent parts of the organisation to go agile.
The main issue with roads 2-3 is that the full benefit of an agile organisation only becomes evident when the technological “backbone” of a firm is fully aligned with a fluid and lean structure.
There is, therefore, a moment in an agile transformation where an agile leap will be necessary, requiring a fuller transformation of the organisation.
Final Thoughts on Changing Your Organisational Design
So, the org design process can be broken down into three steps:
Honing a strategic reorientation.
Aligning the objectives with the strategy.
Creating a roadmap for implementation.
The simplicity of this theoretical breakdown can be misleading. Its implementation can become complex for very large transformations of international conglomerates. This framework applies to smaller evolutions also (either smaller companies or groups within these large conglomerates).
Each of these steps has its difficulties that can be addressed with the appropriate tools. Rather than focusing on the best transformational tool du jour, this was an opportunity to showcase the variety of possible roads that a company can take if it wishes to reorganise its structure and the wide range of frameworks and methodologies at its disposal.
It was also a way of stressing that different type of help is needed at different stages. And that, as in any field that embraces technological transformation and agile structures, it is a world constantly evolving and generating new and exciting solutions that usually go beyond the most popular taglines.
However, organisational change is just one variable in a transformation process and its chances of success increase if it takes into account the behaviours of employees. Any hard transformation of the organisation is always helped by a series of softer changes that consider company culture.
For expert guidance on how to redesign your organisational structure, take a look at Freshminds capabilities.