In a nutshell
What is organisation design?
Organisation design (OD) is the business process of aligning the shape and structure of an organisation with its strategy. It is crucial for business performance, acting as an architectural blueprint for the effective and efficient achievement of business objectives.
This blog describes organisation design as a process that integrates tangible elements (such as strategy and structure) and intangible (such as culture and leadership) within an evolving system. Highlighting the importance of continuous optimisation and change management, the blog offers five key tips for effective OD, emphasising the need for capability building, a data-driven approach, and disciplined continuous improvement to facilitate efficient strategy delivery and improved employee engagement and retention.
What do we mean by organisation design?
Organisation design is a fundamental concept in the world of business and management. But what does it actually mean? And how do you do it well? In this blog, we share a definition of organisation design, look at its key components and why it is important, and suggest five ways to make sure you get organisation design right.
Organisations as systems
An important starting point for understanding organisation design is recognising that organisations are systems.
An organisation is “…a constantly evolving system made up of objectives, value chains to meet customer needs, processes to meet objectives, and people with skills and behaviours to do the work required. All of this is organised into a governance structure that goes far beyond the reporting lines of an organization chart”¹.
These interconnected, dynamic elements mean that every organisation will evolve. But without a clear design this will often be chaotic and unplanned.
Definitions of organisation design
In simple terms, OD is the process of designing the organisational system.
According to the CIPD, ‘organisation design, or re-design, focuses on aligning the shape and structure of an organisation with its strategy. It involves: reviewing what an organisation wants and needs; analysing the gap between where it is and where it wants to be; and designing organisational practices that bridge that gap’.
Cranfield School of Management similarly describes OD as ‘the analysis of the difference between an organisation’s current state and where it needs to be in future, and a strategy for closing this gap. As such, it is a crucial part of an organisation’s success’.
Most succinct of all is a definition which says:
“Organisation Design describes how an organisation works”
At Change Associates, we take a holistic view of OD. It can have many definitions and mean different things to different organisations, including:
- The process of designing an organisation and the resulting processes, structure and rewards that support it.
- The vehicle through which the business strategy and target operating model are executed.
- A discipline, framework and mindset that aims to create business value.
- A powerful tool used to drive cultural change.
- One of the few levers leaders can directly manage to achieve competitive advantage.
We encourage our clients to settle on a definition that will be meaningful within their organisation.
The components of OD
OD is often seen as limited to structure charts. Structure is vitally important, but it is just one of several components which include both tangible and intangible elements:
Example components of organisation design
TANGIBLE ELEMENTS
Strategy
Structure
Roles and responsibilities
Processes/Workflows
Decision rights/Governance
Performance measures and reward
INTANGIBLE ELEMENTS
Leadership
Culture
Values
Behaviours
Skills
Engagement
Organisation Design Frameworks
Many established frameworks for organisation design identify different combinations of these elements, including Galbraith’s Star Model™ and McKinsey’s 7-S Framework.
GALBRAITH’S
STAR MODEL™
Strategy
Structure
Processes
Rewards
People
McKINSEY 7-S FRAMEWORK
Strategy
Structure
Systems
Style
Staff
Skills
Shared Values
These frameworks can be useful as a checklist to ensure key elements are taken into account, and the organisation system can perform at its best. For example, the best-designed structure will only be effective if performance measures and rewards are aligned.
Typical drivers of OD
There are several common drivers for changes to OD, including:
- Changes to the organisation’s strategy and/or operating model
- The arrival of a new CEO or senior leader with a different vision and keen to make their mark
- Large-scale systems transformation
- The requirement to respond to external trends, such as the need for greater organisational agility
- There is a need to scale the business significantly or take out cost.
Whatever is driving the change, recognising the importance of getting the organisation design right is critical.
Why is organisation design important?
‘Organization design is fundamental for strategy execution and driving perpetual performance’¹.
Good OD is about building an organisational blueprint to optimise performance.
The overall design arranges all the component parts and aligns them optimally to deliver the strategy. This enables work to be done in a clear and streamlined way, which has a positive impact on all employees.
“The primary management practices – strategy, execution, culture and structure – represent the fundamentals of business”³
The five-year study underpinning the above research revealed that success was not tied to any particular structure. The winning companies focused on building and maintaining a fast, flexible, flat organisation. They aimed to make their structures and processes as simple as possible, eliminate unnecessary bureaucracy and have strong ongoing discipline in maintaining this over time.
Organisation design – evolution, not revolution
We often talk to clients about another critical success factor – maintaining discipline over time.
Redesigning an organisation is often seen as an occasional intervention, performed once every few years in response to poor performance, a change in strategy, an acquisition or merger, or a need to save cost. As such, it can be both costly, disjointed, and painful, with unintended consequences.
A better practice is constantly optimising and making small changes to organisation design to ensure it continues to support the business strategy. This is similar to the way that the best organisations constantly review other aspects of their business – such as their customer experience – and take prompt action to respond to issues and opportunities.
In his book Organizational Planning and Analysis, Rupert Morrison emphasises that “organization design is an ongoing and evolving process.”²
This process can be driven by People/HR teams through the regular cycle of strategic and operational workforce planning processes.
As with other aspects of your business, if you are not advancing, you will likely fall behind. There may still be a need for occasional large-scale changes, but with the ‘evolution, not revolution’ approach, these will be fewer and less harmful in their impact.
The importance of change management in organisation design
Change management is a critical companion of organisation design. OD is about designing change to the organisation; change management is the process or competency that implements it. The best design is of little use without the capability to transition the organisation into it and ensure the people can adopt the new roles, processes, governance, skills and behaviours needed.
5 tips for getting OD right
There are several success factors will help in getting organisation design right.
Some that we focus on include:
- Build the right capability – ensure you have the right expertise in your team; if not, take action to build it or supplement it with external support where needed.
- Take a data-driven approach – understand your data, baseline the current state so you can identify opportunities for improvement and model the impact of potential changes carefully.
- Do not design around people – while talent is an important lens, we do not recommend this as a starting point. Looking at process, then structure, and then people allows you to develop a dispassionate design and then adapt only if necessary to your people.
- Change Management is critical – any new organisational design is only effective when implemented well. Careful change management is needed to involve and align stakeholders to new designs while ensuring people are ready, willing and able to transition to new roles and structures.
- Revolution not evolution – maintain discipline in your organisation design approach; review the organisation design often and make small incremental improvements to optimise it.
Conclusion
Organisation design significantly impacts performance and is a critical component of business success. It is about ensuring that all elements of the organisation are well-aligned to enable the delivery of the strategy efficiently and effectively.
This, in turn, leads to rewarding and productive roles for employees, boosting performance, engagement and retention.
By building OD capability and maintaining the discipline of continuous improvement, businesses can structure for success, adapt more quickly to changing environments, and provide productive and meaningful roles for employees.
Get in touch
We help clients globally review their operating models and organisation design, implement change and build the capability to do more of this themselves. If you are interested in learning more, please get in touch.
get in touch to discuss how we can helpReferences
¹ Data-Driven Organization Design: Delivering perpetual performance gains through the organisational system’ – Rupert Morrison
² Organizational Planning and Analysis: Building the capability to secure business performance – Rupert Morrison
³ What Really Works – Nitin Nohria, William Joyce and Bruce Robertson, Harvard Business Review
Image (c) Shutterstock | Gorodenkof
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