Design The Organization

In its book “Good to Great” Jim Collins says “First Who, then What”. What is meant is that you should first decide who should be on the bus, who should be off the bus, who should be in what seat, before you decide where the bus will be going. People get on the bus because of who-else is on the bus, not so much because where the bus is going. In this paradigm, it is much easier to adjust direction. We totally subscribe to this principle. We also subscribe to another, seemingly contradictory principle “First How, then Who” by which you need to know How you will reach your end destination before we can decide the skills you need to get there. If part of the strategy is to escalate a mountain, then you might surround yourself with people skilled in mountain climbing and not ocean sailors. Therefore, strung together it goes like this First Who, then What, then How, then Who-else. Looks like a catch 22? Not really! It means that at the senior leadership level, you need to select the key positions before you solidify the Vision Manifesto. It is with this team that the envisioned future is crafted and strategies articulated. Once you have collectively decided where you are going and how to get there, then you need to decide the organization structure needed to execute the strategies and ensure that the right people are in the right place, and accountability is clear and aligned with the Core Strategies.

In designing the organizational structure, the Board of Directors and the CEO need to balance a few factors. The organization has to remain as thin as possible, ensuring as little information filtering as possible; while expanding span-of-control wide enough so to minimize cost, and keeping executive focused. In this way, the Board of Directors and the CEO are building a smooth-running, fast, efficient and effective organization.

The Board of Directors and the CEO also need to ensure complete alignment and integration between the corporate strategies and structure, and the business unit organizational structure and business strategies, and ultimately with incentives and controls.

At the high level, the strategic plan needs to make statements as to the organizational model, the skills and the skill levels, not the specific individuals, which will be required to execute the strategies. The organizational model has to be designed in a way that supports the Core Strategies and clear accountability for strategy execution needs to be established. Compensation models must support the Core Strategies. Positions&Players

Allocating the right people in the right seats should therefore be a reflection of the Core Strategies. Ideally, you need to hire those who have solved problems, how are action oriented and have produced results and you should try to promote from within 85% of the time. Yet, if the organization does not have the Core Competencies to execute the strategies, you will need to hire them.

Organizational design needs to consider traditional centralization-decentralization discussions; deciding on the right mix of centralized efficiency (doing things right) and decentralized effectiveness (doing the right things).

In addition, clarity must be established about the linkage between the strategies and the selected structure; about to the cost/benefit rationale of the selected organizational structure; about the responsibilities and accountabilities resulting from the new structure; and about the expectation regarding coordination and information sharing.

Three major issues have to be understood while design an execution focused organizational model:

The model of inter-dependence of business units (pooled, sequential or reciprocal) will create increasing degrees of coordination complexity;
As coordination complexity increases, information sharing, knowledge transfer and communications will require the definition, implementation and enforcement of methods, tools, processes that will make information, and knowledge adequately available; and
Accountabilities and responsibilities will become matrixed and will need to be clearly documented

Finally, the leadership team will need to communicate and clearly articulate the all of the above so that the employees are not left to figure out why this is all happening.

The flat organization

Organizational structures should be kept as flat as possible. Flat organizations result in greater decentralization and job enlargement as leaders close to markets and customers assume more responsibility and decision-making. Flat organizations are more flexible to respond to market conditions, they are more transparent and foster greater accountability.

Implementing a flat organization means increasing the span-of-control of each manager. Greater span of control can cause inertia, as leaders may find themselves overwhelm with the number and the scope of decisions to be made, with fewer means to escalate to higher levels. Therefore, it is essential that right skills be in place at the leadership level.

In our experience, the upper limit for an executive span-of-control is 15 direct reports.

Final recommendations

Although there are no magic formulas to organizational design, few rules will generally serve well:

Organize around the customers, because in the end they pay the bills;
Ensure you maximize efficiency and effectiveness with the right balance of centralization and decentralization;
Pay a lot of attention to the interface points, ensuring they are understood, that accountabilities and responsibilities are clear, that incentives support the necessary integration and that information will flow smoothly; and
Keep it as flat as possible.

Select Core Strategies

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Published at 20:01

11 March 2011