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.

sustainability org design

Sustainability and Organization Design: Is there a Connection?

I have written more than 100 blogposts, covering a wide range of topics related to organization design.

But so far, I have not tackled the issue of sustainability.

I have hesitated, I must admit, because so far, I haven’t seen anything new.

Of course, to implement a sustainability strategy, a firm will have to make organizational changes, including structural ones.

The changes are often difficult to implement (see this and this article). 

But the repertoire of management techniques is a familiar one, and consists in such things as setting goals, defining responsibilities, and aligning the incentives with the goals.

 The things you would do to get any strategy implemented.

 But there might indeed be something unique about sustainability as a challenge.  

 I was reminded of this recently while reading the book “Mission capitalism”, written by Mariana Mazzucato, professor in economics at University College London.

 Mazzucato is characterized as “left-wing” by some commentators but I think most of her proposals will be viewed as sensible to people across the political spectrum.    

 Her first point is that to tackle climate change and other sustainability problems, we can learn from how grand challenges have been tackled before.

 So in the book, she describes how Preseident Kennendey established the mission to put a man on the moon.

 She explains in some detail how NASA handled this challenge from a leadership and organizational point of view.

 And this is where it gets interesting.

 It was not enough to create technological innovations: NASA had to radically re-design its organization as well.  

 Among other things, NASA had to ensure sufficient coordination across different units and sufficient communication across vertical layers, as well as effective collaboration with suppliers.

 This had to be done in a system of 300.000 people. 

 The organization was re-designed into program offices and centers. Centralized planning was combined with decentralized project execution. Many innovations in engineering management were also introduced.

 I was curious to find this definition of systems management, provided by George Mueller (the then head of the office of Manned Space Flight):

It is almost as if he describes the concept of an organizational digital twin, 60 years before the term was coined. 

(By the way, also in more modern times, NASA’s organization has been examined by researchers, e.g., see this study). 

But back to my earlier point: What Mariana Mazzucato is saying is that organizational innovation is critical to handle grand challenges.    

In particular, she argues that governmental agencies need to pursue bolder and riskier goals, and create more dynamic internal structures to implement them. 

A second point she makes, which is also related to organization design, has to do with the use of missions-oriented management. Here, she is not so much thinking of missions as “organizational purpose” (as we do in our field), but as the big goals that must be accomplished to handle a particular challenge (say, a plastic-free ocean).   

The key principle is to define the missions so that the outcome is clear, while allowing different types of solutions. As she writes in an article (Mazzucato, 2018, p. 811):

Although Mazzucato is mainly concerned with how the government can practice such mission-oriented policies at a macro level, her example from NASA also shows that this is relevant at a more micro level.

 For example, a key element of the Apollo program was to specify the goals but allow internal units (as well as suppliers) to come up with the solutions.

 We can ask ourselves how such a model can be implemented within an organization. 

 As an example, if “A plastic-free ocean” is defined as a key mission at the societal level, then it seems clear that this macro-level mission must be broken down into company and even product-specific missions, for example, “Plastics free packaging for our consumer products”.

 And as with a mission at the societal level, we of course need to break it down into more specific requirements – and ensure that we have the organization in place to realize it.  

 Image by Freepik

problem

Why is it so difficult to aligh the structure with the strategy?

One of the key ideas in organization design is to “align the organization with the strategy”.

What does this mean?

The key assumption is that there is no “one size fits all”. So different strategies require different organizational designs to succeed.

Most people would accept that viewpoint.

It turns out, however, that it’s difficult to do this in practice. A surprising number of firms appear to have an organization that is poorly aligned with their strategy.

A well-known study of this phenomenon was carried out by Nithin Nohria and Sumantra Ghoshal back in 1993. They looked at 41 global firms, and compared the actual organization with what you would expect, given the requirements of the firm’s business environment.

They found that only 17 of the 41 firms displayed “environment-structure match”. So, for example, some firms would have a highly decentralized structure, despite being in a type of market that demanded a high degree of global standardization.

Other studies have come to similar conclusions.

There are several possible explanations for this result.

One is that the managers simply don’t think about strategy and organization at the same time. Maybe they have a strategy session in February. and do the annual reshuffling in August, without connecting the two.

Or perhaps different internal groups (e.g., corporate strategy versus HR people) support these two processes, and that they don’t coordinate very well.

Another possibility is that managers intend to align the organization with the strategy, but don’t know how to do it. It’s not easy. In large firms, there are usually multiple – and sometimes even conflicting – strategic goals. So the first task is often to clarify which of several goals we should prioritize when we design the organization.

A third explanation is that there are time delays that prevent organizations from succeeding at this in the short term.

Lex Donaldson, a leading expert, has found that it sometimes takes several years to correct misalignment between strategy and structure.

The reason is probably that it’s hard to convince stakeholders of the need for change, before performance starts to deteriorate. So organizations live with the mismatch until a crisis occurs that really force people to accept the need for a re-design.

The risk, of course, is that it may then be too late.

So if you are a leader, or somebody helping a leader in considering a possible re-design, the message is probably this one: It would be safer to start now.

reduce barrier

Fighting Complexity with Subtractive Change

Internal complexity seems to increase gradually over time in most organizations.

Earlier this year, a study was published in the prestiguous journal Nature that looks at the underlying causes of this tendency.

The authors conclude that there is a cognitive bias, which they call subtraction neglect.

As the name suggests, it leads people to add things and to ignore the possibility of subtracting things in order to solve a problem.

The authors mention some initial observations that led them to examine this issue.

For example, they analyzed improvement ideas that were submitted to a new university president. Of the 651 proposals, only 70 (11%) were subtractive, that is, involved removing something or stopping an activity.

To study this tendency more systematically, they set up a series of experiments.

In one of the experiments, they showed the participants drawings of a minigolf course and asked them for ideas about how to improve it. The experimenters coded whether the ideas were additive (e.g., “add a windmill”) or subtractive (e.g., “remove the sand trap”).

It turned out that only about 20% of the ideas were subtractive.

So with regards to organizational design, this may explain why we tend to add new roles, units, processes and reporting lines on top of the old ones, instead of removing and simplifying the organization.

Or, in our personal and professional lives, why we commit to too many goals and activities and end up with overburdened schedules (I am guilty of that myself.)

However, all hope is not lost.

In the minigolf experiment, they did another variation, where they offered cues, for example, reminding participants that they could “add or substract”. Offering a cue increased the likelihood that participants would submit a list with at least one subtractive idea.

This suggests that by raising awareness of the issue, we may be able to counteract subtraction neglect, at least to some extent.

In another recent article, Denise Rousseau suggests that this should be a key concern for everyone interested in organization development and change:

She adds that not all subtraction is good.

We need to distinguish between subtraction that adds value, by removing unecessary elements, and subtraction that removes elements that we actually need for the organization to function.

What are the appropriate organization design methods that we can use?

I think many of the methods and principles that I have discussed on my own blog in the past are relevant.

For example, the proposal by Prof. Nam Suh to periodically start from scratch and re-set the system. Or, in the words of organization development expert Paul Tolchinsky – do a yearly “Spring cleaning” of the organization instead of just assuming that everything should continue the way it is.

If we you have ideas for how “constructive subtraction” can be accomplished, I would like to hear from you – feel free to add a comment below.”

Business network web banner photo set in concept of management and growth by using corporate teamwork and people networking skills .

How to Build Purpose-driven High-performance Organizations?

Purpose-driven organizations are those that have a clear sense of their mission beyond just making money. They are driven by a desire to make a positive impact on the world and prioritize their purpose over short-term profits.

Some may view the growing attention to purpose within organizations as merely a branding or employee engagement tactic. Others see it as an inevitable positive response to the current state of the world.

No matter which side of the fence you are, there is growing evidence, that when organizations follow a clearly defined purpose, they have a better chance of financially outperforming their peers in their industry.

Obviously, purpose needs to be more than just a catchy statement on a corporate website. Purpose must be authentic, and it must be operationalized.

In today’s fast-paced world, strategy can no longer be based on accurate predictions of the future. Instead, organizations need to focus on developing capabilities that allow them to adapt rapidly. This requires organizations to have a strong sense of organizational identity and a vision based on a shared purpose.

When done right, purpose energizes an organization and accelerates its performance in three ways:
1. Purpose serves as a compass to guide both short- and long-term actions. Thus, purpose-driven organizations are better internally aligned.
2. Purpose builds trust. Thus purpose-driven organizations enjoy loyalty among their clients, suppliers and other ecosystem partners.
3. Purpose inspires. When employees feel that their work holds purpose, they are more likely to deliver outstanding work.

So, how can companies become purpose-driven, high-performance organizations?
Here are some key steps:

1. Define your purpose
This should be done in an interactive process with the full range of your stakeholders. Note that purpose is not something that is negotiated like a salary or targets. It is not the company that defines purpose for individuals, but individuals who endow their work with a purpose. In purpose, there are no bosses, superiors, orders, or chain of command.
Purpose should express the positive impact and legacy a company aims to leave on this world. It should be ambitious and strive for the seemingly impossible. It should be a meaningful and authentic source of inspiration. All ll employees and other stakeholders must understand it and connect with it.
2. Align your operating model with your purpose
Start with defining the key capabilities and functions that are essential to deliver on your purpose. Translate the key functions into meaningful activities and assign responsibilities for these activities to your organizational units.
3. Pro-actively identify and resolve bottlenecks
When people buy in into a shared vision, they will do their best to achieve the desired outcomes. But if they hit the walls of ill-designed organizations, they lose energy and leave the organization – or worse stay as dead wood. So identifying broken links or ambiguities or overloaded resources in the organization is key to becoming a high-performance organization
4. Foster a high-performance culture
To achieve exceptional results, you need a culture that encourages innovation, collaboration, and continuous improvement. This requires a focus on employee engagement, development, and empowerment.
5. Measure and communicate your impact
Finally, to be a purpose-driven, high-performance organization, you need to measure and communicate your impact. This includes not just financial metrics, but also social and environmental impact.

In conclusion, purpose-driven, high-performance organizations are those that prioritize their mission while also delivering exceptional results.
Let me know if you would like to discuss this. 

Recommended reading:
– Hit Refresh, The Quest to Rediscover Microsoft’s Soul and Imagine a Better Future for Everyone by Satya Nadella
– Deep Purpose: The Heart and Soul of High-Performance Companies by Ranjay Gulati
– The Revival of Purpose Driven Companies – China Europe International Business School https://www.youtube.com/watch?v=ptzvx7llkxc

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What is Organization Design?

“Organization design” involves the creation of roles, processes and structures to ensure that the organization’s goals can be realized.

Some people associate organization design with the mechanical arrangement of positions and reporting lines on the organization chart.

It is certainly true that organizational designers also need to define the vertical structure, including reporting lines.

However, organization design is much more than “boxology”.

Organization design problems are often some of the hardest problems that leaders face. Finding the right design often requires inventing a new solution to resolve a dilemma. And decisions made with regard to formal structure, roles and processes directly impact the jobs and careers of employees – and the ability of the firm to realize its strategic objectives.

In an organization re-design process one may consider elements at different levels:  

  • The overall organizational “architecture” (e.g., the corporate level, the role of the headquarters versus business areas in a large firm, etc.)
  • The design of business areas and business units within a larger firm
  • The design of departments and other sub-units within a business unit
  • The design of individual roles

The field of organization design sits at the intersection of strategy, operations, law and HR.

1. An important driver for organization design is the organization’s strategy – but the design of the organization may also to a great extent determine which strategies we may be able to form in the first place.

2.  We should, in general, attempt to align the organization with the work processes – so there is a close link between operations and organization design.

3. The design of the organization is also influenced by laws, regulations, and governance principles adopted by the industry sector.

4. Last but not least, organization design is fundamentally about people. People inhabit the roles that are defined in the organization design proces. People participate in design processes and also influence designs in many direct and indirect ways. 

imbalance

Dealing with Structural Imbalance

I once worked with a medium-sized oil services firm (i.e., a supplier to oil companies) that seemed to have an “unbalanced” organization structure. The official organization chart looked something like this:

…but in reality, one business unit was far larger than the others and was viewed as a “state within the state”. So if we were to draw the units according to size, the organization chart would look more similar to this:

I was reminded of this case because I am interacting with two different organizations right now that have a similar issue.

But does it really matter whether an organization is “balanced” or “unbalanced”?

The members of the large unit can claim (and rightly so) that their unit is big because it’s successful! They have probably been able to grow in size because they have been doing the right things! So why should they be penalized by being forced to split into smaller units and accept positions with less responsibility?

Well, I hear that, but structural imbalance does represent a cause of concern and it is the responsibility of the leader of the organization to make sure that the system, and not only the parts, are optimized.

There are at least two potential challenges. The first is political: Size equals might. A large unit can come to dominate the internal agenda-setting and decision-making processes. In the management team, the executive vice president who is responsible for 70% of the revenues is likely to have more power and influence than the three colleagues who represent 10% each. The other units may be small today, but may also represent emerging businesses that one need to support.

There is also a tendency that the performance criteria of the large unit dominate the entire organization. So if the largest unit (or practice group) in a project management firm is measured on, say, hours sold, it is typical that all other units are also measured on this KPI, no matter what they do (the other units might perform more specialized services that should be measured on other indicators, such as the hourly rate charged and profitability).

The second challenge is duplication. In the oil services firm I mentioned above, the large business unit had its own staff functions (e.g., Finance, IT and HR), duplicating similar staff roles at the corporate level. This was not only costly in terms of the extra positions, but created an additional need for coordination to align policies at the corporate and business unit level.

In addition, letting a unit grow into a large and monolithic structure may not be the best solution when it comes to resource sharing across different units in the organization.

So how should we proceed? The solution will of course depend on the circumstances, but I would suggest a couple of things that we can do to better understand the current situation and evaluate the future options.

The first is to look more closely at what the teams or sub-units within the large unit actually do. To what extent are they dependent upon each other? In other words, we need to consider the work processes and the interdependencies. Similarly, to what extent do they work – or to what extent should they work – with teams in the other units? The results of such a mapping may look like the image below.

If the teams are relatively independent of each other internally, yet strongly related to teams in other units, you should “disaggregate” the large unit and find a new grouping that reflects the work processes. On the other hand, if you observe that the teams are strongly related internally (within the large unit), with few synergies toward other units, it might be an argument for spinning off the large unit into a separate organization.

In either case, you may use our tool Reconfig to do this kind of analysis 😊.