MARCH 2010 Developed by Agency Human Resource Services, DHRM 1

Organizational DesignOrganizational DesignWhat Is It?What Is It?

• Organizational Design is the creation of roles, processes, and formal reporting relationships in an organization (from Wikipedia).

– Used to create new organizations or departments.

– Used to modify current organizational structures that may not be working effectively or require change due to changing business requirements.

MARCH 2010 Developed by Agency Human Resource Services, DHRM 2

Alignment of Organizational Strategy & Alignment of Organizational Strategy & DesignDesign

Why Is It Important?Why Is It Important?

It is important to match the organizational design or structure with the organizational strategy to

achieve desired performance.– Failure to do so may create organizational

performance challenges resulting from integration issues, communication problems, overload or overlap of work, too large or too small a scope, etc.

Organizational StrategyOrganizational Design

Organizational Culture

Organizational Operations

Organizational ResultsRevenue Services

MARCH 2010 Developed by Agency Human Resource Services, DHRM 3

Key Steps in Organizational Key Steps in Organizational DesignDesign

Organization StrategyPurpose, Vision, Mission,And Objectives Must Be

Defined And Clear

Understand CustomerNeeds And How They

Influence The Organization Design

Understand The Influences of Technology

And Other Environmental Issues

Understand Different Organizational Types

And ChallengesFaced In Existing Design

Develop OrganizationalDesigns, Understand

Pros/Cons, And Choose An Option

Greenfield Approach: Sometimes, an organization will take a Greenfield Approachto Organizational Design. This is an approach in which leadership does not try to modify or use current designs. Rather, they start with a “blank board” and work to create an organization design to match the organization strategy.

1 2 3

4

Implement OrganizationalDesign or Reorganization

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MARCH 2010 Developed by Agency Human Resource Services, DHRM 4

Common Types of Organizational Common Types of Organizational StructuresStructures

Director

Operations Finance LegalHuman

Resources

Director

Eastern Region

Western Region

Operations Finance Operations Finance

Functional Structure Divisional Structure

Design by FunctionBenefitsCreates operational efficienciesCreates clarity of function, specialization

Potential ChallengesLack of communication/coordinationDiffering Interests between functions

Design by Geography, Product, MarketBenefitsCreates focus by customer or product needsSpeed in responding to market opportunities or needs

Potential ChallengesRepetition of functions within each segmentCreate silos within each division

MARCH 2010 Developed by Agency Human Resource Services, DHRM 5

Newer Types of Organizational Newer Types of Organizational StructuresStructures

Matrix Structure Network Structure

Design by Function and ProductBenefitsKnowledge sharingSpecialists focused on products/customers/etc.

Potential ChallengesMultiple “bosses”More conflict and organizational “politics”

Design by Outsourcing What Can Be DoneBetter or Less ExpensivelyBenefitsFlexibleCan be efficient in having resources only when needed

Potential ChallengesLack of complete control over non-core components

Design

Finance

Engineering

Prod Mgr A          

     

Prod Mgr B          

     

Prod Mgr C          

OutsourcePartner 2

OutsourcePartner 1

OutsourcePartner 3

Company

MARCH 2010 Developed by Agency Human Resource Services, DHRM 6

Other Variations on Other Variations on Organizational StructuresOrganizational Structures

Team – design that uses horizontal and vertical teams on an ongoing basis (usually self managed) to accomplish goals; teams may be widespread or may be focused in particular areas and used as a component of another organizational design.

Manufacturing

Mfg PreparationFunction

ManufacturingOperations

Logistics

Team B

Team A

Boundary-less – design minimizes “boundaries” between vertical, horizontal, and external/internal relationships; combines aspects of network and team structures.

Virtual – form of boundary-less design that functions in a virtual world of network relationships through significant use of the internet.

Team 2

Team 1 Team 3

MARCH 2010 Developed by Agency Human Resource Services, DHRM 7

Some Key Factors to Consider in Some Key Factors to Consider in Organizational DesignOrganizational Design

• Degree of Centralization– Does the organizational strategy support a need for centralization

or de-centralization? Centralization supports standardization and central decision making while de-centralization supports flexibility for actions and decision making.

• Span of Control– The span of control is a determination of the number of direct

reports leadership roles have in the organization design. Small spans of control mean that leaders have few direct reports (tall organization). Large spans of control mean that leaders have many direct reports (flat organization).

• Departmentalization– Higher levels of departmentalization result in higher levels of

specialization. Smaller organizations often support simple structures without high levels of departmentalization (“jack of all trades” approach). Departmentalization often increases as organization size increases.

MARCH 2010 Developed by Agency Human Resource Services, DHRM 8

Tips and Tools for Organizational Tips and Tools for Organizational Design EffortsDesign Efforts

Tips• Do Not focus on individuals when conducting

an organizational design assessment. Individual names along with their strengths will be used later in understanding appropriate placement.

• Be sure the strategy is clear and understood by all participating in the organizational design efforts.

• An organization may use different types of organizational designs for different parts of the organization. For example, an organization may use components of a matrix structure for product design & engineering and use a functional structure for manufacturing operations.

• Be sure to focus on implementation efforts once a design is determined. Implementation is critical to acceptance and the success of the design.

Suggested Tools• Current organization charts• Evaluation of effectiveness of current

design, including an understanding of what works well and what does not

• Organizational strategy – current, past, and future including an evaluation of changes

• If using a Greenfield Approach, a blank board or sheet of paper

• A neutral third party to help facilitate discussion – Expect conflict; conflict can be healthy in weighing all the options and a third party has no vested interest in the outcome.

• New organization charts – There are lots of software options for creating organization charts from simple options like PowerPoint and Excel to purchased software.

• Implementation Plan – project planning tools to create and execute implementation of the new design

MARCH 2010 Developed by Agency Human Resource Services, DHRM 9

Measurement of successMeasurement of success

• Once an organizational structure is implemented, it is important to regularly evaluate it’s ability to serve and meet organizational strategies and goals. Measurement may include but is not limited to the following – each organization will want and need to adapt specific measurements to it’s strategic and operational environment. Organizational ability to meet timelines and goals– Level of intra-organizational collaboration vs. level of friction– Organizational financial measures (e.g., revenue, payments, etc.)– Operational service measures (e.g., response time, customer feedback, etc.)– Employee turnover and exit feedback– Employee survey (or other) feedback

• Note: organizations do not operate in a controlled lab type environment. Other factors will also influence these measures. Leadership will need to fully evaluate all measures to determine the most likely impacts on their results. It is like peeling an onion – each layer of evaluation will reveal more information and help to determine the most significant influences.