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How to build purpose-driven high-performance organizations?

by organization design

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?

by with No Comment 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. 

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reduce barrier

Fighting Complexity with Subtractive Change

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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.”

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imbalance

Dealing with Structural Imbalance

by organization design

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 😊.

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