Designing the Organization

It's important but hard to get right

Have you given much thought to the logic behind the design of your organization? Perhaps you have been through an organization design project recently; how are the results turning out? Has the design had a beneficial impact on performance or did it just settle some longstanding questions about who is where in the pecking order? Did the design make it easier for people who need to be working closely together on important tasks to do so, or did it retain silos that get in the way? How many levels have you decided on and are they all necessary?

Organizational design is the tangible expression of how you think the organization should work. Alfred Chandler famously said that structure should follow strategy, but what does that mean in an age where strategies are often changing? Should we keep full time movers on staff to help people relocate their offices after every strategy meeting? Obviously not; so how should we decide who sits where (physically and on the organizational chart)?

Organizational design is a critically important responsibility of the CEO and C-suite. Done correctly and thoughtfully, it can be one of the most powerful levers the top team can pull to optimize the combined efforts of the thousands of people below them. Done poorly, it is a battle over power that often results in unnecessary disruption with little beneficial impact. So how should it be done?

You will need more than a pencil and paper. First, the focus should be less on drawing lines and boxes and more on the organizational work that needs to be done. When work that requires intense collaboration is divided up and placed in different units under the supervision of individuals who may have competing interests, the results aren’t pretty. Organization design isn’t a pencil and paper exercise. Hard work in understanding the way work is done now versus how it should be done in the future precedes deciding who sits in what box.

Don’t try this alone. That’s why it’s important if you are redesigning an existing organization to involve neutral parties who can take a clean sheet approach. Try to do this work with the people who lead units currently and you will likely run into subtle and not so subtle pushback. After a great deal of discussion, you may find that in the end, things haven’t changed very much. No one gives up their box or thinks it would be a good idea to merge their box with someone else’s.

At the same time, you absolutely need the input of people who do the work because they see the opportunities to fix things that have been getting in their way. Like many things about organization design, who participates in it is not an either-or but rather a both-and. Top leaders may want to be the final decision makers but sometimes a view from below is the only way to see another possibility. A corollary is to make sure you don’t put people in boxes first and then design the organization around them; start with designing the ideal organization and see who, if anyone currently available, fits the new requirements.

Polarities can’t be eliminated, only managed. Tradeoffs between the power of headquarters and the field, centralization and decentralization of authority, and the say of sales versus R&D in product development can’t be settled in favor of one side alone. The tensions that exist are healthy in that the needs and perspectives of both sides need to be taken into account. The question is not how to eliminate the tensions but instead how to manage them most effectively, which means that the voices from both sides are heard fully and factored prominently into decisions with attention to maintaining a healthy balance between them over time. The situation may call for a swing in one direction or the other on a short-term basis but long-term success depends on respecting the importance of both. The how is what most designers get wrong; formalizing the power of one side in the organizational chart at the expense of the other causes difficulties. Instead, processes need to be designed that evoke continued discussion and debate so that what is important to both sides can be understood.

Be clear on your values. As you design work processes, you have choices. For example, control and continuous improvement can be built into the roles of people doing the work or specialized structures can be created to safeguard company interests. You either trust people to do the right thing or you don’t. Generally speaking, creating a thriving culture that motivates employees suggests the former, whereas regulatory demands in industries like pharma may force the latter. Likewise, with proper training and incentives, people can be reliably self-managing. Less faith in their ability to do this leads to more organizational levels and associated overhead. Taking time to clarify your values and using them along with other design criteria as guideposts will help you avoid locking in cultural dynamics you may not have intended. As you are designing the “hard” elements of the organization, you are also sending signals about your values.

There isn’t one best way but there are ways that are wrong. Students of organization design spent time looking for the best way to design organizations but couldn’t find it. Max Weber, the famous sociologist, thought he had found the best answer in the bureaucratic form but we know now that there is no “one size fits all” when it comes to organizations. Nevertheless, when it comes to high-performance, we know that any design needs to make a number of things possible. People need to find their work challenging and motivating; they must work together effectively to complete interdependent tasks; problems need to be solved at their source; the organization has to be capable of adapting in response to changes that happen internally and externally; technology needs to be utilized to make work efficient without constraining future innovation; the requirements of stakeholders like customers, investors and partners must be met; goals need to be clear; strategies need to be aligned; rewards should encourage desired behaviors; talent should match the dynamic capabilities the organization’s mission calls for; communication should be two-way and transparent; governance should be effective in maintaining the organization’s vision and reputation; processes must exist for continued innovation, and leadership should be exercised in a way that brings out the best in what the organization can do. As systems theorists like Peter Senge and Russell Ackoff have made clear, all of these elements need to work together in harmony. Designing parts of the organization separately will not produce success; rather, the parts must be designed to work together.

Look ahead. All signs point toward the transformational impact of AI and other technologies on work and the design of organizations in the future. Already, organizations are developing AI strategies that include plans to replace routine human work with AI agents, just as robots replaced employees on the assembly line. What’s different this time is that the technology is learning how to do the creative work that we once thought only humans could do. AI is becoming a collaborative member in all sorts of teams, providing knowledge access but also thinking alongside humans in formulating solutions to test and in some instances, actually carrying out the experiments. As work changes, new roles will appear for both humans and their AI partners and new conceptualizations of leadership will follow. As the boundaries of organizations dissolve, and the gig economy continues to grow, decisions will need to be made about what work stays on payroll and what work can be put out for bid and completed through temporary project teams utilizing AI and other tools. C-suites leading design efforts today have to weigh whether to keep kicking the AI can down the road or start figuring out how to integrate it into almost every task the organization does.

Organizational design is still as much art as it is craft and no amount of effort will produce a design that is perfect or one that will withstand the test of time, even when AI-assisted. Therefore, you should add “organizational designer” to the job description of every C-suite member.