Strategy+Business recently published an article called “10 Principles of Organization Design” by Gary L. Neilson, Jaime Estupiñán and Bhushan Sethi of Strategy&, formerly known as Booz & Company which was acquired by PwC in 2014.
The article addresses that many organizations still approach organization design as if it is only a matter of “lines and boxes”, all though the organization chart is just one of many elements the design. In fact, it is the more subtle aspects of organization structure, such as information flows, decision rights and motivators that make or break an effective organization design.
A good example of this is the so called “one-programs” implemented by many organizations to overcome fragmentation and sub-optimization, and to clean up the inconsistencies and inefficiencies resulting from mergers and acquisitions. Defining global processes certainly helps, but will not suffice unless decision rights and KPIs are also adjusted to support new ways of working. If responsibility is maintained at a local level – which is in itself not a bad thing as it fosters local accountability – there needs at least to be some kind of cross BU incentives in place to ensure that “one” mindset is supported in terms of how results are measured.
Another good example is implementation of implementation of shared services for support functions. Many organizations have learned the hard way that it is difficult to retain staff in shared services centers who typically leave after 2-3 years. The lack of career models and talent processes in shared service centers can undermine the whole concept if not addressed, as the centre struggles to manage SLA fulfillment with a high percentage of unexperienced staff.
Finally, it is important to understand the built in strengths and weaknesses of structural arrangements. As described by Jay Galbraith in his article “Matching Strategy and Structure”, all structural arrangements have their ups and downs. A functional organization design may be great for a single product or service line, but slow in adaption to changing market conditions. A market oriented structure may be better aligned with changing customer requirements, but create other inefficiencies such as duplication and lack of scale benefits. The process driven organization may break down functional silos but create new ones in between process areas. A matrix may increase the level of coordination across functional / product / market areas but increase the level of complexity and time spent on meetings. Adhocracies / network based organizations may be highly motivating for professionals, but are not a feasible option once the organization grows larger. This explains why even hyped “network-based” companies such as Facebook, Google and Apple have ended up with fairly conventional functional/product oriented matrix structures