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What is organizational design?

Organizations are complex structures with many interconnected, moving parts that are constantly changing and evolving. It’s tempting to think you can design your organization once and forget about it, but it’s a project that’s never finished. This article looks at what happens when organizational design goes wrong and how to put theory into practice successfully.

Published by Concentra

Many companies struggle with organizational design for reasons including poor implementation planning to difficulty in gathering comprehensive people data and connecting it with business performance. They may have the belief that organizational design is too difficult and convince themselves that organizational charts are enough.

While it can be overwhelming and easier to think about org design in terms of reporting lines and span of control, it doesn’t have to be this way. All you really need to get started are a few principles and the right tools for the job.

Defining organizational design

Organizational design (OD) is fundamentally about shaping an organization’s structure to align people, work and competencies with business strategy and objectives, to become more effective in achieving the company’s vision and purpose.

Susan Mohrman, professor at the University of Southern California, says, “designing organisations is the process of purposefully configuring elements of an organization to effectively and efficiently achieve its strategy and deliver intended business, customer, and employee outcomes[1].”

Organizational design consultant, Naomi Stanford, agrees that OD is driven by the business strategy and operating context, and requires holistic thinking around systems, structures, people, performance measures, processes, culture, and skills[2].

Where organizational design goes wrong

As companies develop and grow, structures, systems, and processes can become more complex, unwieldly, and out of alignment with business strategy. Organizations that don’t continuously monitor performance and update their organizational design are likely to experience a number of problems, such as:

  • Dysfunctional workflows that falters or breaks down
  • Siloed, fragmented workloads with low quality output
  • Duplication or redundancy of activities
  • Poor accountability for activities and delays in decision making
  • Poor information and lack of authority to solve problems as they arise
  • Lack of trust between managers and employees

Design challenges to overcome

Organizational design is difficult because you’re dealing with a moving target. Organizations are connected systems and whatever changes you make will have a ripple effect that affects your company’s ability to successfully implement its strategy. This can give rise to a number of challenges that lead to poor organizational design:

  • People and politics. Designing an organization around people and roles rather than business needs is the single biggest mistake you can make in organizational design. Don’t be tempted to keep the peace in the short term at the expense of long-term achievement.
  • Data and analytics. Aside from the technical challenge of collecting, merging, structuring, cleaning, and storing data, obtaining information can be difficult for ethical reasons. Employees may be fearful of data transparency and resist disclosure. This challenge will take time to overcome and relies on trust and behavior change.
  • Design processes. Organizational design is about more than just structure, so make sure you apply the same rigor to all areas. Don’t just focus on org charts; look at the organization as a system, be clear on the processes that make up the whole, and understand how they connect.

There are no perfect answers to organizational design and every case is different. Look at org design as a continuous process that works to sustain the organization over time.

Putting organizational design into practice

Putting theory into practice calls for a precise understanding of the interconnecting elements that tie operations to strategy. There are many recognized approaches to organizational design, stemming from work by Kenneth Mackenzie and Galbraith in the 1980s and 1990s.

Organizational design methodology considers activities (work), competencies (knowledge and skills), roles (needed to distribute the work), and human capital (people with the right competencies) needed to fulfil roles and meet objectives (targets).

Broadly speaking, there are three steps to successful organizational design. You begin with the big picture, then go into the practical detail, and finally focus on implementing the design:

  • Step 1: Macro design unpacks the business strategy and prioritizes objectives.
  • Step 2: Micro design is all about the detail. You need to understand what roles you have and the rationale for those roles. What activities is each role responsible for?
  • Step 3: Implementation. Going from micro design to implementation is an iterative process. You won’t get micro design entirely right first time but that’s better than doing no micro design at all.
  • Step 4: Continuous design: Once you’ve completed the design work, shift your focus to continuously tracking your organization and performance against plans. At this point, it’s about bringing everything back to macro level, so you can appreciate the direction of travel, what you’ve achieved, and what lessons can be learned.

Good design links business strategy with employee engagement

Business author Daniel Pink famously popularised three tenets that motivate employees in knowledge organizations, namely purpose, autonomy, and mastery[3]. Through organizational design, you define the organizational system and help to codify the organization’s purpose and how that cascades down.

By being clear on the accountability of each role, you grant autonomy, which requires trust and faith in each person’s ability to effectively fulfil their role. To that end, they need the right competencies, which calls for mastery. When you look at it this way, business success ultimately comes to back good organizational design. Everything is connected.

[1] Mohrman, S.A. (2007) Designing Organizations for Growth: The Human Resource Contribution, Centre for Effective Organizations 07-10 (52), p. 4 (accessed on 27.06.19)

[2] Stanford, N. (2007) Guide to Organisation Design: Creating high-performing and adaptable enterprises, Profile Books Ltd, London

[3] Pink, D. (2009) Drive: The Surprising Truth About What Motivates Us, Riverhead Books

Learn more about organizational design

Continually improve your organizational design through always-on insight into your most valued asset – your people. No more trudging through unwieldy spreadsheets or shuffling boxes around static presentation slides.