What Is Organizational Design in HR?

One of the most common discussion topics on the minds of HR leaders today is Organizational Design. Businesses are constantly seeking to transform themselves to enable scalability and operational efficiency while remaining nimble and focused.

Organizational design is a critical component of creating an agile organization. It can also determine whether an organization operates efficiently or not, as well as whether the organization is flexible enough to adapt to changing needs.

What Is Organizational Design?

Fundamentally, organizational design is optimizing the structure of the organization to achieve its goals including reporting lines, spans of control, layers of hierarchy, locations of work, centralization vs. decentralization, and many other factors. But simply moving boxes on a whiteboard will not improve organization performance.

Recently I have seen an increased focus on organizational design. Clients have been asking how they can optimize the design of their organization to attack a range of goals from efficiency to better addressing global market opportunities.

The focus makes sense.

Why Organizational Design is Trending

Organizations are trying to focus on their mission and on growth while determining the “right” staffing levels in a challenging employment market. They are looking at alternatives around contingent staffing, outsourcing, partnering, and changing organization structure to try to help ensure that they do not stay on the cycle of staff up and lay off.

But just as importantly, companies have realized that for nearly two decades they have made a lot of organizational changes without thinking through the best way to staff the organization – too often decisions have been made in response to surplus or scarcity. Because of this, many organizations are starting to see the symptoms and impacts of poor organization design, including:

• Difficulty getting things done
• Imbalance of workloads across people, functions, etc.
• People working at cross-purposes
• Silos / lack of collaboration / finger-pointing
• Process problems, especially related to hand-offs
• Slow decision-making or analysis paralysis
• Low morale, frustration, turnover
• Customers or internal staff can’t figure out who to talk to about a particular issue

What It Means

This focus on organizational design has illustrated a number of workforce planning issues. One of the most prominent issues is around staffing and productivity. And frankly, I believe that this is an issue that is going to continue to manifest itself. What organizations have found is that the staffing cuts over time have created an organizational design that is not sustainable. The levels of productivity required to achieve the organization’s goals are not sustainable.

Many organizations have pushed too much work onto managers, often taking the idea of a “producing manager” too far. This has begun to manifest itself in a number of ways ranging from increased stress and turnover among managers to a loss of focus on the “management” role (vs. the “producer” role) and consequently turnover issues among staff. In some cases, this dynamic has been seen among individual contributors as well.

There are a number of organization design issues that companies encounter that can lead to these types of impacts.

Current Organizational Design Challenges

• Span of control too big or too small
• Too many layers (possibly too few)
• Too heavy of a matrix
• Too much or too little consistency
• Misaligned incentives
• Skill levels too low
• Poor manager capability (complexity of structure exceeds manager ability to manage)
• Structure favoring isolation and disconnection from the action, making a department blind to critical intelligence and feedback

All of these prevent organizations from learning and increasing innovation, agility, and adaptability. Unfortunately, too many organizations attempt to adjust structure in an informal and undisciplined way (what I call “moving boxes around”).

Anyone can draw a new org chart. What is much harder is ensuring that the new organization actually achieves the goals it is established for and fixes the problems that it is supposed to fix.

Organizational Design Isn’t Just Structure

But just as important, the structure needs flexibility and adaptability to an ever-changing environment. To address that, organizations need to undertake a disciplined process that not only addresses structure but systematically addresses all of what comes before and after structure, including (but not limited to):

• Process
• Technology
• Metrics
• Support
• Incentives
• Skills
• Interactions with the External Environment (Industry, Regulatory, Suppliers, Competitors, etc.)

In a future post, I will dive more deeply into the process for organizational design.

Organizational design can be a critical component of driving competitive advantage in an organization, but just as important, it can be essential to ensuring that an organization can actually achieve its mission.

To do it well, there must be a disciplined and comprehensive process that not only addresses structure but also ensures that all other key factors are aligned to make sure that the structure truly delivers on its promises.