Organizational Design: Finding the Best Fit Between Structure and Strategy

Business Planning

Companies today are in a perpetual loop of organizational flux. Technological advancement, globalization, and modernization make sure of that.

To keep up with these new developments, a company constantly recognizes the need to reassess and change its organizational design. And we’re not just talking about a few tweaks here and there. Rather, companies often find themselves in a shakeup.

An organizational design is a systematic approach that reassess and aligns various elements of a company to meet business demands. When things take a turn for the worse, many companies start reviewing their designs.

However, a study by McKinsey states that only less than a quarter of organizational designs succeed while 44% fail just after initiation. Setting up a design doesn’t need to be painful though. In order to work, it only needs to find the right mix of structure and strategy.

Strategize First

Before anything else, the company needs a strategy. It’s important that this comes first, as making decisions without a concrete plan may be counterproductive to the goal. Failure to create an organizational design that complements strategy derails 70% of company programs.

Strategizing, on the other hand, allows the company to identify and reassess its objectives. This is an essential step to finding the most appropriate design for the company.

Observe the Surroundings

A McKinsey survey shows that 60% of executives neglected to assess their organizational situation before giving a redesign the green light. Most managers like to assume that they are in complete control of their company’s situation, but it’s not always the case.

To start the design process, companies need complete and detailed information only available through a full-scale organizational assessment. Assessments unearth the root of the problem and eliminate the likelihood of revisiting them down the line.

Surveying the scene entails gathering data, noting down statistics, identifying performance gaps, figuring how employees fit into the organizational chart, and identifying the factors that derailed the company in the past. These may be in the form of unproductive meetings, ineffective reward systems, or outdated protocols.

Review the Targets

Ideally, the company should plan for an organizational design that can last five years into the future. Strategizing entails an organizational self-reflection. To pinpoint its plans, the company needs to ask which purpose it wishes to serve.

Next, the company must identify no more than five changes that benefits them and work towards accomplishing those. To drive a successful design, the company should focus on factors it can control.

Finally, the company should consider environmental factors that threaten the business and find an anchor within itself to identify strengths and opportunities.

Focus on the Long Term

Some companies use organizational designs as a short-term solution. However, this only creates a new set of problems. After all, designs are much more than band-aid solutions; they are blueprints to a long-term goal.

A sustainable organizational design considers how its structure affects employee motivation. This means focusing on talent. Start a dialogue with the team to explain why the changes are necessary, retrain employees to build new skills, and establish motivators through positive reinforcement.

Moreover, a company must consider both hard and soft factors. Hard factors include measurable procedures such as division and allocation of tasks, information and process flow, and management.

On the other hand, soft factors include patterns and behavior in the workplace such as office culture, leadership style, rewards and compensation policy, and skills development.

Aligning these factors improves an employee’s negative perceptions about the organizational process, boosting their performance and happiness at work.

Lay the Structure Last

A design that has no structure is like a house with no foundation. However, changing the structure should not be an isolated initiative. Rather, it goes hand-in-hand with the other elements.

After all, an organizational design isn’t meant to create a new form of organization. It aims to set up interventions to achieve the company’s goal.

When a company changes the structure too soon, it runs the risk of reverting back to its previous state just as quickly. Once a company has addressed the problem points during its strategizing phase, then it’s ready to redraw the organizational chart.

Choose the Right Blueprint

New organizational structures are quick to hitch companies to the bandwagon. Many organizations decide on untested blueprints, whether to try something new or create a buzz around themselves.

But an organizational design holds too many things at stake. It should involve careful planning and evaluation. This means weighing current problems against a new structure’s possible solutions, assessing the structure’s response to external factors and eliminating political agendas.

For example, a formal and centralized design is perfect for companies that promote efficiency and cost control. With a sole leader, this set-up enables a quicker decision-making process. However, it won’t be an effective design for a company that wishes to promote self-sufficiency and leadership among its units.

Consider the Domain

The ideal structure corresponds to the company’s size, scope, and operational programs. A large company typically needs more complexity and divisions to create synergy. In this case, it’s important that the structure optimizes the effort rather than the output.

A company may also choose to expand or deflate its structure, depending on the organizational demand. Reducing layers hastens information flow and creates greater accountability. However, this may mean managing more people for the executive.

On the other hand, creating more layers frees up management time. However, this slows down the flow of messages. Whichever blueprint a company chooses, it should always reflect the strategy that the company proposes.

Prepare for Contingencies

Research from Stanford University suggests that an open-ended organizational structure benefits a company in the long run. That is, the company must provide room for contingencies; while there are standard blueprints, they’re not a fit-for-all.

At the end of the day, they can be altered or modified depending on the needs of a company. A flexible model could lead to further development and exploration that works in the company’s favor. This model must have the capacity to quickly adapt to rapidly changing environments.

Create Roles

Employees play a vital role in organizational design. It’s the company’s responsibility to create positions that maximize the employee’s skills. As such, its pool of talents must be able to fill the roles that the company needs.

For example, if the company wishes to improve sales innovation, they should give the task to someone with a diverse background in marketing.

In case the employee is lacking in certain areas, the company should utilize other talents to fill the gaps. This balances the workflow and even increases employee engagement through collaboration and teamwork.

The company should build its strengths around employees. Rather than retrenching them during a restructure, an organization may instead retrain them. The company could further reinforce their employee’s strengths through a formal rewards system or redirect their focus to the new strategy.

Structure and Strategy Go Together

There is no set formula to determine the right design for an organization, but many of the best organizational plans sit between structure and strategy. That is, structure provides the foundation for a design while strategy directs it towards its goals. Creating an organizational design is the ideal way for a company to evolve along with the constantly changing market.