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What Does Organizational Design Mean?

Organizational design refers to a systematic process of identifying and rectifying operational inefficiencies, procedural shortcomings, structural inadequacies, and system flaws within a business. This method involves adapting these elements to align with the current objectives and realities of the company, followed by developing plans to implement the necessary changes. It aims to enhance both the technical aspects and the human element of the organization.

For most companies, the design process leads to a more effective organizational structure, resulting in significant improvements across various areas such as profitability, customer service, and internal operations. Moreover, it empowers employees and fosters their commitment to the business. The hallmark of this process lies in its comprehensive and holistic approach to organizational improvement, encompassing all aspects of organizational functioning. Thus, it enables businesses to achieve:

Achieving Organizational Excellence

  • Delivering excellent customer service
  • Increasing profitability
  • Reducing operating costs
  • Enhancing efficiency and cycle time
  • Cultivating a culture of committed and engaged employees
  • Developing a clear strategy for managing and expanding the business

By organizational design, we mean the integration of people with core business processes, technology, and systems. A well-designed organization ensures that its structure aligns with its purpose or strategy. It enables the organization to overcome the challenges posed by the business environment and significantly increases the chances of collective success.

As companies grow and face increasingly complex external challenges, their existing processes, structures, and systems may hinder efficiency, customer service, employee morale, and financial profitability. Organizations that fail to periodically renew themselves exhibit symptoms such as:

  • Inefficient workflow with breakdowns and non-value-added steps
  • Repetition of effort due to lack of time for doing things right the first time
  • Fragmented work without considering the greater good (e.g., production shipping substandard parts to meet quotas)
  • Lack of customer focus and understanding
  • Silo mentality and conflicts over territory
  • Lack of ownership and responsibility (“It’s not my job”)
  • Covering up and blaming instead of problem-solving
  • Delays in decision-making
  • Insufficient information and authority for problem-solving at the front line
  • Management, rather than the front line, taking responsibility for problem-solving
  • Lengthy time required to accomplish tasks
  • Ill-defined systems or systems that reinforce incorrect behaviors
  • Lack of trust between workers and management
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The Methodology

The design process can be adapted to suit organizations of any size, complexity, and needs. It comprises several steps, including:

Chartering the Design Process

As senior leaders, you gather to discuss the organization’s current performance, its health, external demands, and the need for a redesign. During this stage, you establish a charter for the design process. This charter includes a “case for change,” desired outcomes, scope, resource allocation, deadlines, participation, communication strategies, and other essential parameters guiding the project. In some cases, senior teams may undergo strategic planning or team development processes before initiating a redesign initiative, depending on the clarity of their strategy and teamwork.

Assessing the Current State

Before making any changes, it is crucial to gain a comprehensive understanding of the organization’s existing state. Using our Transformation Model, we facilitate a thorough assessment to examine the organization’s functionality, strengths, weaknesses, and alignment with core ideology and business strategy. This assessment brings clarity to leaders and members, shedding light on the organization’s current state, interrelationships between different components, overall health, and most importantly, areas for improvement.

Designing the New Organization

The senior team, along with invited participants, envision the future and develop a complete set of design recommendations for the “ideal future.” The process includes:

  • Defining the basic organizing principle (e.g., function-based, process-based, customer-based, technology-based, or geography-based organization)
  • Streamlining core business processes that generate revenue or deliverables to customers
  • Documenting and standardizing procedures
  • Organizing people around core processes and identifying the necessary workforce
  • Defining tasks, functions, and skills, along with performance metrics, evaluation methods, and accountability
  • Determining the facility layout and equipment requirements for different teams and departments
  • Identifying support resources (finance, sales, HR) and their locations
  • Defining the management structure that provides strategic, coordinating, and operational support
  • Enhancing coordination and development systems (hiring, training, compensation, information-sharing, goal-setting, etc.)
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At a certain point, the design process transitions into a phase of planning for implementation. Critical dates are set, and concrete action plans are created to execute the new design. Communication plays a vital role during this step, as progress needs to be effectively communicated to all members of the organization. A communication plan is developed to educate everyone about the ongoing changes. Education raises awareness, and involving everyone fosters commitment.

Implementing the Design

The objective now is to bring the design to life. People are organized into natural work groups, receiving training on the new design and team skills, as well as engaging in team-building activities. New work roles are learned, and relationships within and outside the unit are established. Changes are made to equipment, facilities, reward systems, performance systems, information sharing, decision-making, and management systems. Some changes can be implemented quickly, while others may require more time and detailed planning.

Example:
A few years ago, we collaborated with a company in the aluminum industry. The company realized that it was becoming bureaucratic and unresponsive to customer needs. After assessing the strengths and weaknesses of the existing organization, they embarked on an organizational redesign process to create a more collaborative and customer-focused front office. The diagrams below provide a high-level depiction of this change:

Pre-design Workflow:
Pre-design Workflow

Post-design Workflow:
Post-design Workflow

The first chart illustrates how most people within organizations tend to think in terms of silos, organizing individuals based on their similar functions. The second chart demonstrates how the company redefined its structural boundaries to become more cross-functional on the front end of their business. They formed teams that took full responsibility for managing customer orders, bringing about a 50% increase in total billings for a major product line and a 25% rise in margins.

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These charts oversimplify the design decisions, which encompassed improvements in workflow, system support, and the roles of leaders and other support functions within the new organization. Nevertheless, they provide an idea of the integration and improved collaboration that can result from effective organizational design.

Summary

This approach to redesigning organizations leads to remarkable improvements in quality, customer service, cycle times, employee turnover, and absenteeism. Productivity gains of 25% to 50% are not uncommon. The versatility of this approach allows businesses of any type and size to adopt it. The time required to complete a redesign project varies based on the organization’s nature, size, and resources. Large and complex projects can be completed in several days, while smaller organizations can accomplish the process in less time with fewer resources.

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