Practical approaches to organization design

A shift in competition, regulation and technology is forcing companies to redefine work requirements. An organization redesign can help companies adapt to these changes.

By Alison Sargent and Tim McConnell

What does a well-designed organization look like, and how does it feel to work in one?  How is it different from a poorly designed organization?

The answers to these questions lie in the functional structure, also known as the organization design, in a workplace. Although the concept of organization design has been around for ages, many human resources professionals are unaware of its strategic impact, and more importantly, how organization design should be approached.

While they share the same acronym, organization design is not to be confused with organization development. In fact, these are two separate concepts. Organization development deals with the “people” side of business performance — leadership, team dynamics, and operational effectiveness. 

Organization development is an effort that is planned, organization wide, and managed from the top. Using behavioural science knowledge, it is intended to increase organization effectiveness and health through planned interventions. It is used to change beliefs, attitudes and values in an organization. Organization development entails leadership coaching, effective communication strategies, and change awareness.

Meeting business goals

The key to recognizing the difference is to understand that organization development is a response to organization design. In simpler terms, organization development deals with “soft matters,” while organization design is “hard.” Organization design is a process for improving the probability that an organization will be successful by assessing and reshaping structure and positions to better meet (business) goals. It is a formal, guided process for integrating the people, information and technology of an organization. It deals with the allocation of tasks, reporting relationships and levels to provide a means of achieving full organizational alignment between the “people” aspects and the “function.”  This alignment refers to the complete integration of skills, jobs and people, with the goals, functions and structure of the environment on an ongoing basis.

An effective organization design helps communications, productivity and innovation. It creates an environment where people can work effectively.

According to Capelle Associates Inc., an organization design consulting firm in Toronto and Montreal, the benefits of organization design include:

• Improved employee satisfaction
• Improved customer satisfaction
• Improved financial performance
• Improved competitive advantage
• Significant return on investment 

In the book, Competing by Design, authors David Nadler and Michael Tushman advise that a significant redesign is needed when there are substantial congruence problems between the formal organizational arrangements and the other components of a business (such as reporting, business processes, information, performance measurement and control systems).  These situations may be driven by:

• Strategic shifts in competition, regulation, technologies, markets or resources — resulting in a redefinition of work requirements
• Cultural or political change
• Growth
• Staffing changes (such as new leadership, or changes in needs, preferences or skill levels)

Symptoms of ineffective organization design to look out for include:

• Lack of inter-office coordination
• Excessive friction and conflict among internal groups
• Unclear roles
• Misused resources
• Poor work flow
• Reduced responsiveness to change
• Proliferation of extra-organizational units such as task forces, committees and projects

Clients often require an organizational redesign as a result of:

• Organic growth — the organization has grown one position or one unit at a time in an unplanned fashion
• External impacts — such as mergers or amalgamation
• Changes in technology — such as the introduction of a new ERP computer system
• Changes in business requirements — such as a new program or service offering
• Changes in leadership — where the current structure does not support the goals of new management

Organization design is more than simply a structure or an organization chart. It is the process of aligning an organization’s structure with its mission (see illustration on next page). This means looking at the complex relationships between tasks, workflow, responsibility and authority — and making sure these all support an organization’s objectives.

As illustrated, there is a direct link (or at least there should be) from operations and business plans all the way to an organization’s corporate strategy, mission and vision. 

When change takes place, the functions, roles, responsibilities and skills of jobs and positions change. This automatically impacts the entire HR discipline (HR planning, recruitment, resourcing, training and learning, performance management, classification, employee relations, and compensation) and must be fully supported by an effective HR strategy and HR service delivery model.

There are several key elements involved in reviewing a company’s current structure for effective organization design. Whatever the reason for change, there are six important factors to be considered: strategy, systems, culture, people/skills, work processes and structure.  

The best way to restructure the organization and produce effective results is to base a company’s design on its overall strategy and goals of the business. This involves using the vision, mission, and strategic plan of an organization as a reference point and guide to where the change will take the business. The strategy element of organization design answers the question, “What goal are we trying to accomplish?”  Without understanding the link to the strategy component, a company’s new structure will be ineffective.

Making the plan work

Once the goals and strategy are determined, current functions, work processes and interconnected activities need to be identified and assessed. An in-depth understanding of current processes is vital to understanding what needs to be changed. Once a business has assessed its functions and work processes, the organizational structure component needs to be addressed. Does a business need a new work unit? How many levels of management are required to meet the strategic plan and would a matrix design be more effective to reach a company’s goals are questions to ask to help a company start to think about designing a new organization chart. Before a company starts, there are factors that need to be considered. The actual work systems need to be acknowledged. What is the business plan for each unit? Who is monitoring the work?  How are resource allocation and technology implemented?  How do the support functions contribute?

In order for a company’s strategic plan, work processes and structure and systems to be effective, they need to be executed by the best employees with carefully planned roles and responsibilities.

This involves integrating people, professions, and skills.

Finally, a major factor to consider is the culture of the organization. An organizational culture is a key driver for success in organizational change. A paper exercise will not help if employees are not willing to accept the new way of operating.

At a more practical level, there are several principles of organization design to consider when preparing an organization chart.  These are:

• Division of labour (departmentalization and/or specialization)
• Coordination and control (chain of command, span of control)
• Authority and responsibility
• Line activities versus staff activities
• Job design

Organization design involves a systematic process with several factors. It can be daunting if not planned appropriately and not based on a viable model.

Authors Alison Sargent and Tim McConnell (tim@mcconnellHRC.com) are human resources and organization-design consultants with McConnell HR Consulting Inc. in Ottawa. 

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