NOW OR LATER 5

How do you know whether your organization needs a re-design?

One of the most difficult – and most fundamental – tasks for a business leader is to recognize whether it’s time to introduce a change now – such as a re-design of the formal structure –and whether it is best to wait and do it later.

If you do it too early – before there is a real need – there may not be sufficiently strong momentum to carry the change through, or you simply waste time and money introducing a change that addresses a problem that does not really exist.

If you do it too late, you miss out on the potential benefits that the change could have brought. Key employees may leave as they become frustrated with the lack of resolution of important issues. You may even loose out to competitors who are already making the required adjustments in their respective organizations.

One may err both ways, but most of the leaders I have worked with have been rather cautious people, so at least in my personal experience, waiting too long seems to be the main risk.

So the key question becomes: How do you know when the organization is in need of – and ready for – a re-design?

The first thing to realize is that although organization design decisions are made by senior managers, senior managers rarely have a complete picture of what is going on in their organization. So it’s crucial to create a good understanding of the current situation and consider how people at various levels of the organization view the current challenges.

At the same time, one usually cannot ask people directly about whether it’s time for a change or what their preferred model would be. Or rather, one can certainly ask, but one may not know whether one can confide in the results.

Organization design is about the context of work, which can either hinder or faciltiate the achievement of key organizational objectives. The influence of organization design factors is not always obvious, however.

It’s a bit like asking customers what features they want in a future product. Some customer may be able to answer but many won’t be able to imagine what the features should be or even why they need the product at all before they have seen and tried using it.

In addition, there’s the political issue: Most leaders are aware that the opinions that are communicated may be colored by the personal interests of the people that voice them. This is particularly important in organization design because any proposed change will typically influence the roles and career oppurtunities of the very same people that are involved in the process.

At the same time, it is possible to infer from other information that we collect whether there is a need for a re-design. This requires relevant data and getting some support from people with skills in data analysis and diagnosis.

There’s a range of information sources available in most organizations that one should make use of. First of all, one should look at the data that is already being collected. I have found that the results from employee surveys, customer feedback, and cost benchmarking exercises often point to challenges that can be traced back to organization design choices. Yet many companies fail to utilize the information they already have when they consider a re-design.

How we interpret the quantitative data is still a somewhat subjective process. In more well established, scientifically based professions, there are norms that one can rely on in interpreting quantitative data. A physician knows what the range of normal blood pressure is, or the typical reading for an infection indicator, and can use this knowledge to decide whether there is a need for treatment. Yet as Elliott Jaques once pointed out, we are not at the stage where we have this type of knowledge about organizational indicators.

However, one can also turn it around: Instead of looking for an objective indicator, one may consider these types of judgments as relative. For example, if you know which strategic goals your organization has set, you can then ask what capabilities you need to achieve these objectives, and to what extent the current organizational structure facilitates or hinders the development of these capabilities (If you want a more specific example, look up on page 76 of my book where I show how such assessments can be carried out.)

The best people to answer these kinds of questions are mid-level managers and employees in key positions. They are the ones who feel the consequences of the current design and who can best judge the prospects for achieving the strategic goals that top management has set.

It is possible, in this manner, to build a fairly solid foundation for making a decision. There will always be an element of personal judgment in these cases, but the quality of the judgment will be enhanced significantly if is informed by data that is collected and analyzed in a systematic manner.

Org design

Imagining an Alternative Future

You cannot re-design an organization without thinking about the future.

Professor Georges Romme (University of Eindhoven) has an elegant way of putting it. He says that design is “inquiry into systems that do not yet exist”.

This holds true whether we design an organization from scratch or whether we adjust an existing organization.

Even in the latter case, the adjustment is based on assumptions about the future (e.g., whether customers will continue to buy our product, or whether the same technologies will continue to dominate).

But there are at least two major challenges with designing for the future.

The most obvious one is that the future is uncertain. We know what we have today (or at least we can collect information and find out what we have). So with the right tools and techniques, we can optimize based on the current situation.

But there are many scenarios for how the future will pan out. How can we design an organization when we don’t know what will happen?

The main proposal here is that we design a flexible organization, one that can adapt to different circumstances (e.g., see this blog post).

The second challenge is a psychological one. The current situation dominates our thinking. We have become accustomed to the way the current organization works.

It takes effort to imagine that the organization could look differently. We may even suffer from so-called “status quo bias” – we are emotionally attached to the present and afraid of change.

There are many strategies and interventions have been proposed to counter these challenges. 

I find Russell Ackoff’s idealized design approach particularly intriguing.

His basic idea was that we should design the organization from scratch, rather than extent the present model. But at the same time, he did not advocate that we should try to predict the future.

His recommendation was that we ask ourselves what the organization ideally would look like, if it was designed anew today.

According to Ackoff, we do this by formulating a set of specifications, just like we would when asking an architect to design a house for us. For an organization, the specifications may be the overall mission, broken down into more detailed requirements or desired outcomes (also see my recent blog post on unit mandates).

Once we have a common understanding of what we want, we can then gradually introduce constraints so that that it becomes a model that we are able to implement.

See this video (duration: 28 minutes, it’s part of a series) for further information. I would guess that the video is from the early 1980’s – but Ackoff was way ahead of his time – this is really “design thinking”!

By the way, Ackoff recommended the same approach for education. He didn’t like the use of case studies, for example; he said that they only lead to discussions about superficial features of existing organizations. Here too, his proposal was to ask students to design ideal systems instead of modifying existing ones. 

However, I don’t think idealized design is the best approach in all situations.

It seems well suited for situations when performance is far below expectations, or when there is a radical change in strategy, triggered by external changes. In these situations, it may be necessary to start from a blank slate and re-imagine the whole system that you are dealing with.

But the majority of re-designs occur in fairly well-managed organizations and in situations with only modest strategic shifts. Of course, we should still try to come up with a future-oriented organizational model, but we may do that improving or reconfiguring the current organization rather than by starting from scratch.

But even here – for a more limited area (say, a particular unit or business process), one can still generate more creative solutions by asking what the ideal solution would be and by working backward from there to the current situation, instead of extrapolating from the current situation into the future.

I would also add that even if we use idealized design, it does not imply that we can ignore an analysis of the current organization. As I mentioned, even Ackoff agreed that you have to (gradually) take into account technical and practical constraints to find a solution that you can implement.

Being future-oriented does not imply that you ignore the current realities, only that you temporarily free yourself from them when thinking about potential solutions.