Organization Design or Organization Structure?

IBM/Tabulating Machine Co. Org Chart

If you are an executive moving into a new role or implementing a change in your organization (e.g., a company, a division, etc.), you may be thinking about designing or redesigning your organization. Although it is natural to want to modify your organization in such a way, this should be done with some clarity and restraint. One of the most common ways to go astray is by equating organization design with the creation of structure in the form of an organization chart, or “org chart.”

Whether you use the work of Galbraith; Waterman, Peters and Phillips; Nadler and Tushman or someone else as the foundation for your design approach, two things should be apparent. First, sound organization design cannot be done in a vacuum. Second, organization design involves more elements than just structure. More specifically, the range of elements includes:

Strategy

  • E.g., corporate, business unit, etc.

Environment

  • E.g., external and internal

Work Requirements

  • E.g., tasks that must be performed for the organization to function

Structure

  • E.g., functional, geographic, product, customer and matrix

Processes and Systems

  • E.g., coordinating mechanisms and talent management

People

  • E.g., capabilities individuals possess vs. capabilities needed for roles

Effective organization design involves ensuring these elements align to help accomplish the objectives of a company, division or function in the for-profit sector (or the equivalent in the non-profit sector). When this is done well, the benefits become evident.

  • Optimal organization design increases the ability to allocate people, money and other resources to the right areas to drive strategy (Business Week).
  • 26% of revenue growth obstructions can be eliminated when organization design ensures talent management systems develop senior leaders and prevent talent shortages (Corporate Executive Board).

If you are going to modify the design of your organization, here is some food for thought:

Start with strategy.

  • Although strategy is a critical element for organization design, it is often an element that action-oriented executives do not adequately consider.

Keep in mind the talent capacity of your organization.

  • Avoid creating something that is too complex for people to manage.

Be careful with designing structure around people.

  • You are less likely to redo the structure down the road if you focus first on the work requirements of the organization before you add people to the mix.

Don’t expect to find one design that will perfectly address all of your needs.

  • Tradeoffs will need to be made as you progress through the design process.

Organization design work is not done until you have successfully implemented it.

  • The best design can become a nightmare if you do not thoroughly think through the change management implications before you roll it out.

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Ryan Lahti is the founder and managing principal of OrgLeader, LLC. Stay up to date on Ryan’s STEM-based organization tweets here: @ryanlahti

(Photo: IBM/Tabulating Machine Co. Organization Chart, Flickr)

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