Deciding Your Organisation Structure
Leaders can sense when their organisation is not working well, or if the environment they operate in has changed, rendering the operating strategy and structure obsolete. The Covid19 pandemic has caused an 'event horizon' for all organisations and sectors.
Many organisations have tried to reorientate to a changed economic environment and to different ways of working since 2021. However, organisation design is difficult, as it aims to take a complex entity, dissect and analyse it, and then rebuild it, so that it functions better. This requires a mix of analytical work and visualisation of the data. Then add some experience with a mix of logic and creativity to design the solutions.
This article offers some insights on the first phase of designing the shape of an organisation, which we call the macro-structure.
The axioms 'strategy sets structure' and 'structure breeds behaviour' remain true and have stood the test of time.
Don't be tempted to jump straight into redesigning the detail of the organisation, without considering if the overall structure is correct. We say it is imperative first to decide if an organisational restructure is required. It's one of the biggest and most important questions an executive needs to answer:
'Do we need fundamentally to reorientate the organisational structure to achieve our strategy?'
Some leaders shy away from embarking on an organisation design initiative. Redesigning a company is a large undertaking that needs expertise and experience to get it right. So, leaders might be tempted to opt for an operational improvement programme. If the organisation needs to improve performance only a little, then, this option might be suitable. However, if the organisation needs to raise its performance substantially or faces a significant threat, a new strategy and operating structure will be required.
A good strategy is about being unique. It means selecting a specific set of activities to deliver a distinctive combination of value and forming the organisation to provide its products and services most effectively. Set a robust strategy, restructure and align the organisation, then implement an operational improvement initiative, such as lean or six-sigma. Improvement initiatives won't work if the structure is broken. Strategy, structure, then lean.
A company's macro-structure should be configured logically and aligned with its strategy.
The macro-structure is the skeleton of the organisation. It determines how positions are grouped, and the approximate size of units. It also encompasses the design of the horizontal and vertical linkages to add flesh to the bones – especially planning and control systems to standardise outputs, and coordination mechanisms to enable collaboration.
Few companies approach organisation design issues systematically.
Chief executives can provide a clear rationale for their companies' strategies; they are often much less articulate when it comes to justifying their structures.
When it comes to designing an organisation structure, there are four drivers to consider:
Product-market strategies: how the company intends to lead each product-market field in which it will compete
Corporate strategy: how the company intends to gain advantage from competing in the product-market areas
People: the skills and attitudes of the individuals within the organisation
Constraints: the cultural, environmental, legal and internal factors that can curb the choice of design.
Designers who fail to consider these drivers will make it hard for a company to achieve its strategy. This leads to the first of a series of practical tests – the market advantage test.
'Does the design allocate appropriate management attention to the operating priorities and intended sources of advantage in each product-market area?'
Even senior-level managers who try to add value are often vague about how they will do so. Do the senior members of the organisation 'earn their keep?' To answer this, consider the executive team advantage test:
'Does the design reflect the intended sources of added value generated by the executive team and board members?'
Most managers within a company will want to bend the structure to retain their team. However, we advise you to train or replace employees that are unable to contribute sufficiently. Do not weaken the organisation's ability to achieve its strategic goals. It's tough to do, but necessary. That is why it's healthier to get external support when redesigning an organisation. This leads to our people test:
'Does the design identify the skills, experience and behaviours, within each departmental unit that are required to achieve the strategic intent?'
Managers are aware that constraints can exist, but sometimes do not pay enough attention to issues during the design process. Options can be developed and even selected before the corporate lawyer or IT expert points out the problem. Hence our fourth test, the feasibility test:
'Does the design take account of the constraints that may make the proposal unworkable?'
To help managers adopt a less haphazard approach, we have distilled five principles of good organisation design:
The specialisation principle: set unit boundaries to accomplish the most important benefits obtainable from specialisation
The cooperation principle: define units so that the tasks that need to be coordinated are within unit borders
The knowledge and competence principle: identify which responsibilities to decentralise and the hierarchical levels to set up
The control and commitment principle: define the process for ensuring that managers effectively discharge decentralised responsibilities
The innovation and adaptation principle: ensure the organisation can change and evolve in the future.
I understand the theory, but what does it mean in practice?'
The coming years will make or break many organisations. One of the first things that you should do is examine your strategy – and remember, efficiency programmes are not a strategy. Are the plans still relevant in this new environment? If not, change them.
Bring in an external expert to review the macro-structure and decide if an organisational restructure is required, or if it's better to redesign the organisation within the confines of the existing structure. Then, use a methodical approach to identify the drivers and adopt sound design principles to reorientate, reshape and resize the enterprise to achieve the strategy. The future of your organisation will depend on it.