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8 Steps on the Path Toward Organizational Design

November 18, 2020 Leadership
By Dom Nicastro

Everyone knows the cost of people for business. Korn Ferry reported earlier this year (PDF) the cost of people in organization can run up to 70% of the business. “So if you're looking to acquire, restructure, introduce new products and services, or simply determine your position in the market, you need to ensure you have the right number people in the right job levels and functions, to meet these goals,” Korn Ferry researchers reported. 

Of course, right? The big question is how. One of the ways organizations can create structures of its people in ways that make sense is through organizational design. We reported earlier this fall that organizational design serves as a model that allows organizations to accelerate in complex business environments by creating direct alignment of the organization to its strategy and business model. With success, the performance of people within the business is enhanced with corresponding benefits to results.

“There is no one ‘right’ organizational design,” said Jorgen Hesselberg, author of Unlocking Agility: An Insider’s Guide to Agile Enterprise Transformation. “Rather, an agile organizational design is dynamic and optimizes swift fulfillment of customer value within the organization’s constraints.”

Organizational design is the art of shaping structures, systems and culture to make an organization more successful. This kind of design should always braid the organizational scaffolding (structures, systems) with the human element, according to Beth Glick of ChangeCraft Consulting

Now, the question is: how do you get there? We’ve identified 8 key steps on the path to recognizing true organizational design.

1. Visualize the Organizational Value Stream

Value Stream Mapping (VSM) is a well-known tool traditionally used in Lean to help identify waste and handovers in work processes, according to Hesselberg. A key strength of this activity is not only that a clear picture of how work is performed emerges, but the conversations between people involved in creating the VSM result in more alignment and understanding, Hesselberg said.

“An organizational VSM achieves the same purpose at a more strategic level: visualizing what it takes to create value from a need is discovered (conception) to a need is ultimately met (fulfillment) is an eye-opening activity that will reveal flaws in the current organizational structure and elicit ideas for organizational improvement,” he said.

Related Article: Understanding the Foundational Concepts of Organizational Design

2. Align Organizational Incentives

Organizational rewards and punishments drive behavior and establish norms. Creating an agile organizational design therefore requires incentives to be aligned with the activities organizations want to drive, according to Hesselberg.

“It makes little sense to structure an organization toward a product-centric design yet reward employees for meeting unit-specific targets,” he added. “This typically leads to local optimization, product delays and actively prevents an end-to-end perspective. When implementing an agile organizational design, make sure to involve HR so that employee incentives are aligned with operating goals. For instance, by making reducing end-to-end lead time a common goal for employees in a given value stream, everyone wins by helping their fellow colleagues remove bottlenecks.”

3. Do Some Traditional Temperature Taking

Glick said there is no one way to go about organizational design. Traditionally, one might embark on some kind of organizational assessment that takes the temperature of different parts of the organizational constitution.

“This,” she said, “could include assessing levels of satisfaction around a variety of organizational indicators, e.g., roles and responsibilities, departmental or other organizing frameworks, decision-making authority, cultural practices, compensation models, etc. This is one way to launch organizational design process, simply trying to get a sense of how it’s going for staff.”

Related Article: Is It Time for an Organizational Network Analysis?

4. Explore Tensions, Start Small

Convening teams around exploring organizational tensions or blockages can also be constructive in identifying the issues around which to design, according to Glick. What are the existing organizational tensions or blocks that constrain us from doing our best work?

Another way to go about organizational design is by identifying a micro-experiment to shift a structure, system or cultural practice. Implementing these micro-practices can have a snowball effect, she said, and this happens for a few reasons:

  • First, running and following through on a small, doable experiment builds momentum.
  • Second, it builds confidence that change is possible.
  • Third, it reminds the team that small changes can lead to more significant changes.

5. Understand the Impact of Time to Lifecycle Profits

To ensure an organizational design optimizes for what’s in the best interest of the organization, take steps to measure the economic impact of delays in the value stream. Leveraging “cost of delay” can be an effective way to ensure the organization’s leadership can make tradeoff decisions in a timely manner, according to Hesselberg. Organizations need to make a decision on whether to organize a given function as part of a feature team or as a separate organizational component.

As for measuring cost of delay, if having a component team causes a delay that is financially unacceptable, the decision is obvious. Having this economic perspective, Hesselberg said, enables the organization to make organizational design changes based on business impact and financials, rather than politics.

Related Article: Your Teams Are Exhausted. Here's What Leaders Can Do

6. Empower Your People to Self-Organize

Organizational designs can quickly become stale in today’s rapidly changing business environment. To turbo-charge your ability to unlock organizational change quickly, empower your people to self-organize when they detect a need to do so.

“The time it takes from a change is needed to a change is implemented can be financially devastating,” Hesselberg added. “To reduce the lead time for organizational change, empower your people to make the necessary adjustments by giving them the information they need, be transparent regarding business impacts and trust them to make the right decisions.”

7. Create Process Transparency

In traditional organizations, organizational design and its implementation can be laced with secrecy, fear and jostling, according to Glick. Conversations take place in senior boardrooms, with staff waiting anxiously for the terminations to begin.

“Building a process that is architected from its beginnings with clear communication, knowledge and shared authorship to the degree possible is critical,” Glick said. If you are drastically moving to a new organizational structure, engage in collective learning about different types of designs, Glick said. Build communication loops that check in, create opportunities for staff contribution and feedback, and clearly explain how decisions will be made, she added.

The organization should develop some type of social contract for how it wants to engage in an organizational design process, according to Glick. “This may simply be linking to and activating existing values,” she said. “Values can be a foundational piece for the building of resilient organizations and engaging in processes like this with the distinct character of the respective organization. It also brings an intentionality to the aspired character of the process and accountability to those stewarding it.”

8. Never Forget the Humans

People are at the heart of organizational systems. You can design a sophisticated plan with beautifully architected structures and systems, but if you do not wrestle and elevate human psychology in the process, the plan will tank, Glick said.

“To what degree is there trust in the system?” she asked. “To what degree are teams armed with the skills and cultural buoys to productively communicate with one another? If teams are mired in fear-based cultures where productive communication and trust are absent, then even the most elegant organizational design will not gain traction. Sometimes, addressing team culture needs to happen before efforts at organizational redesign. Other times, these efforts take place concurrently. But they should never be absent.”

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