ORGANISATIONAL DESIGN

Organizations per se don’t succeed. Success comes from each individual in the organization being successful – and being aligned with the organization’s goals. Organization structure design is the process an organization goes through in order to ensure that the efforts of all the individuals in that organization are aligned with the overall strategy and direction of the organization.

The performance gap

Most organizations have evolved, rather than been designed. As a result, the efforts of the individual parts of the organization are only loosely aligned, as in Organization 1, below.

An enterprise that has been through an organization structure design process will display a greater degree of alignment between the direction of the business as a whole and the focus of the individual parts. Organization 2 above has a higher degree of alignment, facilitating greater business success. The difference between the two figures above is the measure of the performance gap between the organizations they represent. In our experience this gap can be as much as 20-30% of revenue or EBIT.

Why is organization structure design so critical? – A case study

Some years ago, the CEO of a small company that supplied product to the construction industry appealed for help. The company, employing 31 full time employees (FTEs) had lost AU$1.2 million in the previous year. After a short discussion, it was clear that while the employees were all diligently pursuing what they thought were the objectives of their individual roles, there was poor alignment with organizational goals.

We agreed to work together with the CEO and his direct reports through a process of organization structure design; a methodology known at Mercer as Alignment for Success, or AfS . The process took about three months. Final implementation of the decisions made, including the resulting recruiting of a couple of key managers, was completed in roughly one year. The company looked significantly different at the end of this period.

Before AfS – the company situation could be summarized as follows:

   

•  AU$1.2 million lost in the previous year
• 31 full time employees
• 7 direct reports to the CEO
•  Direct reports were actively managing 48 key accountabilities
•  13 Company vehicles
• 8% Market share
•  Reactive sales strategy.

The organizational structure, at this time, was relatively complex:

After AfS – the company position had changed significantly:

§ Profit of AU$6.8 million reported

§ 21 full time employees

§ 4 direct reports to the CEO

§ Direct reports were actively managing 96 key accountabilities

§ 8 company vehicles owned

§ 28% market share

§ Proactive sales strategy.

  

The organizational structure was significantly streamlined:

The AU$8 million turnaround, following these changes to the organization structure, was considered to be a successful result. The company continued to show good growth and profits for the next 8 years. It is worth noting, however, that when the CEO moved on sometime later, his successor restructured again and that within twelve months the company was once again reporting an operating loss. The importance of alignment, demonstrated in the case example, is clear. Alignment may well be, in fact, one of the most important tasks a CEO undertakes.

 This link is depicted diagrammatically as follows:

The challenge is to link the customer, strategy and tasks. Ultimately strategy and objectives can be translated into key accountabilities. These accountabilities can then be allocated to individuals as job tasks. 

Organization design – the process

Organization design occurs in three stages:

Strategic Organization Design looks at the big picture and develops a conceptual model for the parts of the business and how they interact with each other. This will often include redefining the roles that report to the business unit manager (CEO, MD, ED etc).

Operational Organization Design is the part of the process that defines all of the individual jobs in the organization. Operational Organization Design is often done in conjunction with implementation.

Implementation is the process of communicating and managing the change from the old structural concept to the new structural concept and often requires the development of new business processes and behaviors.

  

AfS – the process

AfS is a rigorous process a CEO and senior management team can work through to ensure that the accountabilities and tasks of individuals within the organization are aligned with the strategic direction of the organization as a whole. It allows the management team to discuss, debate, and agree on how they need to act and interact in order to meet each accountability.

The outcomes of the AfS workshops are recorded on accountability matrices, which will be used during the Operational Organization Design and implementation steps.

In preparing these matrices each accountability is discussed at a number, ranging from 3 to 7, of levels.

In the simplified example of an accountability matrix below we have used three basic levels of accountability:

  

§ Thinking – thinking about how the accountability will be met.

§ Doing – carrying out the actions to ensure that the accountability is met.

§ Checking – checking that the thinking and doing worked.

Accountability Number 1 Recruitment Managing Director Human Resources Line Managers Thinking Helps Owns Helps Doing Helps Owns Checking Owns Helps Helps

Indicators of Potential benefit to be gained Organizational circumstances that my indicate a need for a/S include the following

• Money, clients or market share being lots 
• Business critical markets “slipping through the cracks” with no one obviously accountable 
• A business strategy – with the need to implement it now. 
• A new business strategy – with the need to implement it now 
• A new CEO or new senior management team 
• Staff being unclear about "who is accountable for what"        

Organizational structure that is "too heavy" or has too many layers

• Organizations suffering from "silos" and internal competition
   
• Executive teams not working together well, with organizational barriers impeding success
   
• Recently undergone mergers or acquisitions
   
• Organizations being too internally focused.