Ever found yourself in a room with other managers, drawing boxes on the whiteboard and discussing where each current staff member would (or would not) fit in a new organisation structure? If so, and you worried this is not a good approach to organisational redesign, you’d be right.
“Many CEOs and senior managers bring too much of their own background and biases to organisation design. The new structure should enable the organisation to deliver on its strategy and work more effectively than the previous structure and also other potential structures” said Greg Joffe, AGSM Adjunct Associate Professor and Principal at Nous Group, an international management consultancy focussed on complex organisations and government.
And structure matters. “There are studies since the 1990s1 showing that companies whose structure fits their strategy had higher financial performance, in growth and profitability, than firms whose structure misfits their strategy. There is established management theory on organisation structure and what types of structure best suit different environments and strategies. Use this knowledge in thinking through potential future organisation structures” said Joffe.
So how should you design a new organisational structure? Set out below, and in a series of videos, Joffe outlines the six things leaders should do to ensure their organisational redesign will set them up for success.
1. Understand the strategy
We all know structure should follow strategy, so how best to distil what matters in the strategy? According to Joffe, the strategy framework develop by Lafley and Martin (Playing to Win: How Strategy Really Works) is an effective way to organise business objectives and outcomes by answering the following questions: What is our winning aspiration? Where will we play? How will we win? What capabilities must be in place? And what management systems are required? “The ‘why we will win’ statement is critical in understanding strategy,” he said.
2. Understand the current state (and future state work)
The manager should define the organisation’s current and future work activities to deliver on the strategy. These work activities will be grouped into possible organisation structures in step 4. Getting the right level of detail is an art – too high level and you cannot create potential organisation structures that are sufficiently different; too detailed and you cannot come up with and assess a manageable number of organisation structures. “Try to explain the business in 50-100 work activities – and be sure to include work not currently done that will be needed to deliver on the strategy,” Joffe said.
Managers should also obtain a current organisation chart and from their HR department, data as at a given date. This one that includes roles, reporting lines, who is in each role, who is on leave and their salary information, plus on-costs for each role and person. This enables modelling of the future state and ensures you can identify what happens to each employee under the new structure.
3. Define design criteria
Choosing the best organisational structure is a multi-factor decision with set criteria and relative weightings used to select the best possible design. The criteria should reflect the strategy (“What will the organisation structure need to deliver to best align with and support the strategy?”) as well as principles of good organisation structure (“clear accountabilities” and “reduce overlapping tasks in different teams”)2. The design criteria should add up to 100 per cent and reflect the relative importance of each criteria.
4. Identify options
The objective here is to identify as broad a range of organisation structures as possible. What organisation structures might work? By thinking broadly, those designing the organisation structure can overcome the bias to come up with something tied to the current state with minor tweaks. “Think about how you would organise the business looking through the lenses of activity, customer, product or service, or geography.,” Joffe said. “Throw in wildcard designs like a super lean model and agile organisation structures”.
5. Assess options against the design criteria
Assess the organisation structures from step 4 against the design criteria developed in step 3. Rate each structure against each criterion and identify which design scores highest. Sometimes, some aspects of one option and different aspects of another are positive, and a new option is created combining the best of the two previous options. This new option is added to the list of options and assessed. Use an iterative process to select the best design.
“It is very unlikely that the new design will satisfy everyone, and therefore sometimes it is the ‘least bad’ option, Joffe said. “This six-step process brings rigour and objectivity to what can otherwise be a very subjective process.”
6. Test and refine the preferred option
Select up front who decides on the right organisation structure and whose input will be sought. Test the top-ranked structure with a range of staff to ensure it is workable. Iterate as needed, including going back to steps 3, 4 and 5 if it becomes clear the preferred option will not work or needs further tweaking.
Once an organisation structure has been selected, utilise a communication program, including managing the timing of who gets told what, when, and by whom. All staff need to be mapped from current to future roles to ensure managers can tell each staff member where they will fit. It may be that some staff will not be continuing with the organisation; these cases should be handled with sensitivity, and those people need to know their entitlements and what assistance will be provided. Joffe’s “Organisation Design Question and Answer” video discusses how to structure communications during an organisation restructure.
You can find Greg’s organisation design video briefings on his YouTube channel.
1 See for instance, Hamilton & Shergill, The Logic of New Zealand Business. Strategy, structure and performances, Oxford University Press, 1993
2 Goold and Campbell, Do You Have a Well-Designed Organization, Harvard Business Review, 2002.