The Complete Guide To Organizational Design

The Complete Guide

To Organizational

Design

Table Of Contents:

What Is Organizational Design . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

What Is Organizational Design Used For?

Organizational Design Principles . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Principle #1: There is no ‘best practice’

Principle #2: Start with a clearly deﬁned and understood strategy

Principle #3: The design answer is in the room

Principle #4: Organization ﬁt and integrity matter

1) Focusing only on the org chart

2) Relying on benchmarks or templates

3) Delegating the work

4) Looking for the ‘smart’ answer

5) Working in the wrong direction

6) Not being willing to ‘pay now’

6 Approaches To Organizational Design You Should Avoid . . . . . 5

Step 1: Design context and diagnosis

Step 2: Strategic mandate

Step 3: Strategic organization design date

Step 4: Operational + functional organizational design

Step 5: Implementation and change management plan

The Org Design Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Table Of Contents:

How To Prepare For Organizational Design . . . . . . . . . . . . . . . . . . . 9

Organizational Design Models . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

1) Organize around competitive advantage

2) Create boundaries between competitive and necessary work

3) Focus on the seams

4) Distribute decision rights

5) Design clear, meaningful roles

Redesign Your Organization For Success

Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

Organization Design Challenges Most Leaders Misdiagnose . . . 12

Misdiagnosed Symptom

Competing priorities

Unwanted turnover

Inaccessible bosses

Cross-functional rivalry

Poor governance

Bad role design

Excessive spans of control

Misaligned incentives or metrics

Real Design Challenge

That’s where organizational design comes in.

To avoid this fate, businesses must periodically ‘regenerate’ to meet customer needs and ﬁt the

realities of their internal and external environments.

But instead of serving the business, it becomes a barrier to efﬁciency, customer service, employee

engagement -- and ultimately, ﬁnancial performance. If left unchecked, this “organization

erosion”causes the business to stagnate into a shadow of its former self.

No surprise that a 2016 study found that 92% of companies rank org redesign as the no.1 initiative.

As businesses grow, processes, structures, and systems that once worked well start to outlive their

usefulness, if organizations fail to continually adapt them to current needs and opportunities.

When successful, organizational design and development initiatives enable a host of positive

outcomes and address a laundry list of issues faced by many businesses.

Organization design is the process by which leaders thoughtfully, and holistically develop processes,

procedures, structures, and systems that support its strategy and culture.

What Is Organizational Design?

What Is Organizational Design Used For?

Faster execution of your strategy

Better customer service

Increased proﬁtability and reduced

operating costs

Greater agility

Greater efﬁciency and faster outputs

Lower turnover and absenteeism

A clear management and growth

strategy

A culture of committed and engaged

employees

Reinforce Positive Outcomes

Inefﬁcient workﬂows and redundant

processes

Lack of customer focus

Lack of system, process, or outcome

ownership

Delayed or ineffective decision

making

Poorly deﬁned or misattributed KPIs

and incentives

Mistrust between colleagues, teams,

and leaders

Lack of effective problem solving

Address Negative Outcomes

There is no

“best practice”

Start with a clearly

deﬁned strategy

The design answer

is in the room

Organizational ﬁt

and integrity matter

So, it should be no surprise that — according to research

by Deloitte — the importance of organizational design

makes it a top concern for 90% of senior leaders.

To realize these beneﬁts, a business must realign its

existing processes, procedures, structures, and systems

using a socio-technical approach.

Both of these are critical elements of organizational design.

Oftentimes, businesses going through reorganization focus only on technical systems, and within those, almost

exclusively on hierarchy - the “org chart.”.

What does that mean? Businesses

have two main components:

1. Technical systems that concern how work is done,

workﬂow, structures, and technologies

2. Social systems that concern business culture,

leadership, people and their skill sets.

If you try to change organization!systems without involving the people who make up those systems,

resistance is inevitable. To see lasting success with organizational design, a business must give equal

attention to both technical and social systems in an integrated approach.

This is one of the main reasons why so many change initiatives are unsuccessful — they fail to take the

holistic approach needed to avoid resistance and successfully embed change.

Call-out/Tip

Organizational Design Principles

Principle #1: There is no

‘best practice’

Leaders love to benchmark. The logic is simple — if you’re doing

things in line with others in your industry, you can’t stray far or go

wrong. However, trying to “clone” other’s success is not a good

approach to business organizational design.

As much as big consulting ﬁrms like to push standardized

organizational design structures, they don’t work in the real world.

Every business is different, and what works for one could be

inappropriate for even its closest competitors.

To succeed, you have to ﬁnd your own way. You can’t be beholden to

templates, best practices, or benchmarks.

Principle #2: Start with a

clearly deﬁned and

understood strategy

Leadership teams often have a good grasp of the beneﬁts of

organization design. However, they often lack alignment and a

uniform understanding of the overarching strategy.

At the highest level of abstraction — where people are most

comfortable — it’s easy to agree to a clear strategy. However, this is

by far the least useful level to consider organizational design

strategy. It’s easy to agree to a high-level strategy because there are

almost no trade-offs or real-world decisions to make.

To set your business up for success, you must drive your strategy to a

level of speciﬁcity that forces leaders to make clear decisions and

trade-offs — including those related to resource allocation and

competitive differentiation.. You have to be prepared to say ‘No’ to

things that don’t align to your strategy and organizational design.

This is a tough task, and will lead to disagreements. However, by

taking the uncomfortable step of making these trade-offs upfront,

you’ll avoid roadblocks later on.

When it comes to designing socio-technical systems, there are several things to consider.

First, always remember the purpose of the exercise: to change your organization’s behavior in order to execute your

strategy. To achieve this, you’ll have to juggle a large number of disparate concerns and competing priorities.

Ultimately, every decision you make should be considered in relation to the purpose of your business. And with this

ﬁrmly in mind, there are four basic organization design principles.

Principle #3: The design

answer is in the room

The answer to your organizational design conundrum won’t come

from a big consulting ﬁrm, an analyst, or even from us. Within your

team, you already have the intelligence and experience needed to

produce the design you need.

While working towards your design, understand there are usually at

least a handful of workable solutions. Choosing the optimal solution

for your business comes down to your strategy and the trade-offs

you’re willing to make.

Most often, the need for outside help is concerned with a rigorous

methodology, an understanding of organization psychology and

behavioral science when it comes to change, and the need for an

independent voice to guide and push internal decision-making.

It’s also valuable to have outside help to guide the change and

transition management process. Change can be culturally and

emotionally difﬁcult, and expert guidance can ease what is often a

painful process.

So, what do you need experts for?

Principle #4: Organization

ﬁt and integrity matter

The impact of culture on organizational design is signiﬁcant.

You can’t expect to succeed with a benchmarked or ‘template’

approach. You have to develop a plan that ﬁts the unique needs of

your business. This requires attention to both technical and social

systems.

At the micro level, you must deliberately make trade-offs and

mitigate their downsides. At the macro level, you must ensure all

decisions are made with the ultimate business strategy. As hard as it

may be, leaders must govern this process and be the ultimate

decision-makers about what’s best for the business.

Organization design is about creating a coherent and self-

reinforcing ecosystem that adapts to the needs of your customers,

market, and competitive dynamics. For this to be possible, you must

focus simultaneously on micro and macro considerations:

It’s tempting to begin a design initiative by

focusing on technical systems — most often by

rearranging the org chart. This is absolutely

the wrong approach.

Social systems are at least as important as

technical systems, because both comprise the

“work” being organized. Trying to create the

foundation of your design without considering

them is a sure route to failure.

1) Focusing only on the org chart

No matter how tempting they are,

benchmarks and templates will never get you

to a successful design.

Your business must ﬁnd its own path - one

that is not KPI-centred alone, but that is also

committed to focusing on growing the

relationships and roles that will be carrying out

work in the new design.

2) Relying on benchmarks or templates

Organizational design is among the most

important work you can do as a leader. Your

approach to undertaking this can make or

break it’s success.

If you want a cohesive, holistic design and

collaborative organization that’s geared towards

its overarching strategy, use a holistic and

collaborative approach to design it. Your

leadership not only produces the design blueprint

— it demonstrates the attitude and models the

commitment needed to make it a reality.

3) Delegating the work

Elegant and clever solutions are alluring, and

there are no shortage of management fads to

grasp onto. Silver bullets are always tempting,

but they are rarely effective. While they look

good on paper, they don’t stand up to real-

world challenges.

Organizational design is about making tough

trade-offs and aligning leaders behind those

decisions. You must be willing to make decisions

with full knowledge of the consequences, and

put measures in place to limit downsides.

4) Looking for the ‘smart’ answer

And with organization design being so critical to business growth, why is it that nearly 60% of

respondents in a recent study said they experienced a reorg in the last 2 years? With 44% of them

burning out before they’ve accomplished their objective.

The problem is that there are plenty of ways to get it wrong. With that in mind, here are six common

approaches that simply don’t work:

Now that we’ve covered the basic principles of organization design, it should be clear that a holistic

approach is critical. Success is about ﬁnding your organization’s unique path.

6 Approaches To Organizational

Design You Should Avoid

The Organization Design Process

While there is logic to this approach, it has several drawbacks. Most notably, it’s expensive and highly

prone to failure.

Why’s that?

Perhaps the most signiﬁcant factor in the failure of change initiatives is they assume you can tell

exactly what needs to change — and how — in advance. They work on the basis that major changes

can be made using a simple formula:

Traditional organizational design used a two-step process to plan and implement major changes:

1. Hire management consultants to diagnose problems and design a solution; and,

2. Hire a change manager to plan and oversee implementation.

Org charts should always be informed by

need, not the other way around. Designing

an organization to succeed always starts with

the desired end result — effectively delivering

on a strategy.

Instead of starting from where you are and

‘tweaking’ broken spots, evaluate how to best

serve your market and work backward from there.

5) Working in the wrong direction

Business change comes in two ﬂavors: pay-now

or pay-later. By investing time, energy, and

resources in design upfront, you’ll reap

signiﬁcant dividends later through the change

management and organization design

implementation process.

Visible, uniﬁed direction from leaders will

inﬂuence employee commitment and build

momentum toward a full and successful

transition.

6) Not being willing to ‘pay now’

Assess the business’ external environment. Includes any changes in customer needs, the regulatory

landscape, competitor analysis, etc.

Assess and diagnose the business’ internal environment. Highlight areas where people, systems, or

processes are not in line with the strategy and identify the source of any issues.

Establish leadership buy-in and direction. Leaders are best placed to diagnose, design, and orchestrate

change. Without full, explicit leadership buy-in, no change initiative can succeed.

Step 1: Design context and diagnosis

Current state alignment. Determine how the business’ current internal landscape needs to change to meet

new strategic and operational priorities.

Develop and explore alternative models. Work with internal resources to ﬁnd opportunities for

improvement and test different ways of working.

Locate work and categorize resource implications. Identify all work required to meet competitive and

regulatory needs. Identify the organization roles and resources needed to complete each work item.

Evaluate and select the best-ﬁt model. Explore candidate designs in-depth and identify the model that

best ﬁts the business’ objectives and needs.

Step 3: Strategic organization design date

Set strategic priorities. These relate to how a business will continue to achieve its mission. Most often, this

relates to properly serving customer needs.

Set operational priorities. These relate to the internal landscape of a business, and how it will support the

overarching strategy.

Once this step is completed, the business can also assemble the design team and set program criteria and constraints.

Step 2: Strategic mandate

There have been many times when Navalent has been

called in to implement the organizational design of

businesses that have been left holding a plan created

by an external analyst.

While these plans look good on paper, they don’t stand

up in the real world. And, because all the planning

work was done upfront, it’s too late to change anything

once implementation begins.

This ﬂawed approach to organization design is a big

reason why — as the McKinsey study we highlighted

earlier points out — an incredible 75% of change

initiatives fail.

At Navalent, we take a different approach. Our ﬁve-step

modern organizational design process has helped

hundreds of businesses assess, plan, and implement

design initiatives over the last 30+ years:

Develop groupings and linkages. Group roles into teams and departments and identify linkages needed to

ensure all necessary information- and workﬂows are present.

Translate grouping to top-level org charts. Once the basic organizational design and structure is in place,

groupings can be used to produce a top-level org chart.

Design a detailed governance framework. Structure and delineate management and leadership roles

throughout the business, including direct report responsibilities.

Step 4: Operational + functional organizational design

Only now that all strategic design decisions have been made is it time to consider building an org chart. This is

the polar opposite of the way most businesses approach change and is partly responsible for the much higher

success rates seen at Navalent.

Readiness and risk assessment. Change can be a painful and emotional process. Success relies on

thorough preparation and identiﬁcation of possible barriers.

Build an implementation/transition plan. Once the team has identiﬁed all hurdles, it produces a holistic

plan to move the business from its current reality to the newly agreed design.

Develop a communications strategy. People often feel threatened by change. A comprehensive

communications strategy is essential to get people on board and ensure a smooth transition.

Step 5: Implementation and change management plan

Once all of the groundwork has been laid, it’s time to thoroughly plan and implement the new organization structure.

A strong and inspiring vision. This is one reason why leadership buy-in is so crucial. Without it, you’ll

never win the ‘hearts and minds’ of employees, and ultimately, you’ll face too much resistance to make

real change.

Team-level involvement from day one. Nobody wants to have change inﬂicted on them. By involving

teams from the start — and taking their feedback seriously — you’ll give them a chance to ‘own’ part of

the process, reducing their resistance to it.

Measurable quick wins. Slow and steady may eventually win the race, but there has to be early proof your

design is viable. There must be metrics in place monitoring the design’s progress. If it takes too long to see

results, resistance and cynicism will rise quickly.

Recognition that some aspects of the existing culture are worth saving. You can’t expect to change

every aspect of your business’ culture without resistance. Try to identify aspects of the culture that add

value, and take pains to preserve them.

Ultimately, the #1 barrier you’ll face to successful organization design is change resistance and fatigue.

Many people see change as a threat. It threatens existing employees with the loss of time, resources, comfort,

control, and ultimately their jobs. Even the hint that a major change project could be imminent is enough to

make people mistrustful of their manager, leaders, and even colleagues.

Worse, when an organization has a track record of failed change, people roll their eyes when the “new ﬂavor” is

announced. Cynicism has set in and people already expect “this one” to fail too.

Simply, one of the most important steps in preparing for organizational design is preparing people for change.

To do this, you’ll need:

How To Prepare For Organization Design

There are many things you can do to lay the groundwork for an organizational design initiative. Most of

them relate to properly understanding and involving the people who work in your business - but in

essence you’ll need to ask yourself 4 main questions:

Where does our organization exceed at delivering our strategy, and where do we struggle?

What behaviors and skills do we need to deliver this strategy, and where are they missing?

What makes our business uniquely compelling to our primary customers and the top talent we

want to attract?

What levers do we need to pull to successfully make change? (Depending on your business, they

could be anything from ﬁnancial incentives or adopting new technologies, to structural change

and cross-functional dynamics).

“One of the most inspiring parts of our work is watching design teams discover their future

together. They get into the room, wrestle with really hard challenges or go after big

opportunities, and eventually they build the organization that can get them where they want

to go. The process is one of the most powerful approaches to transformation that exists.”

Mindy Millward

Co-founder & Managing Partner

Organize

around

advantage

Create boundaries

between types

of work

Focus on the

seams (not the

functions)

Distribute

decision rights

fairly

Design clear,

meaningful

roles

Nonetheless, plenty of consultants will happily offer you a prescriptive ‘plan’ based on your business size, type,

or industry. These plans will never truly ﬁt your business because all trade-offs have been made for you by

consultants who don’t understand your cultural or leadership dynamics.

So, instead of taking the easy (and ineffective) path, be ambitious. Create your own ‘models’ of organizational

design based on ﬁve simple concepts:

Pre-Packaged Organizational Design Models

This is a common element to organizational design models, which help a speciﬁc type of business

‘level up’ its structure or culture. In other words, is there a “plug and play” organization design we can

readily emulate and adopt?

Our position is clear: pre-packaged organization design models completely miss the point of the

organizational design process. Every business is different and must develop its own design to meet its

unique needs and culture. Your design should help your business achieve its goals by focusing on what

makes it different, not by how you can be like someone else.

After all, how can you expect to outperform or differentiate from your competitors if you’re trying to

copy (or ‘benchmark’) their design?

There are likely to be multiple designs that could help your business achieve its objectives. Ultimately,

you’ll choose the one design that best ﬁts your strategy and the trade-offs you opt to make.

Nobody can make those decisions and trade-offs for you — your business leaders are the only people who

have the necessary knowledge, context, and ‘feel’ for the business.

Call-out/Tip

First, answer the critical questions of identity for your business:

What sets us apart?

What are our markets?

Who is our customer?

These may seem obvious, but they often go unasked. If your design

isn’t based on an understanding of what makes your business

different, it can never help you achieve business objectives.

1) Organize around competitive advantage

Some of the most important work in your business will be a

collaboration between individuals in different units. Product

innovation, for instance, sits at the intersection of R&D, marketing,

and business intelligence.

In your design, focus plenty of attention on the ‘seams’ between

business units, and ensure tools and processes are in place to

support coordination across them.

3) Focus on the seams

Competitive work drives or acts as a support function for the

business’ ability to compete. Your design must organize this work

for mastery.

Necessary work is what you have to do to meet administration,

regulatory, or compliance needs. Your design should organize

this work for maximum efﬁciency.

When competitive and necessary are too close, it’s easy for

mundane tasks to infringe on strategic work. Create clear

boundaries to prevent this from happening.

2) Create boundaries between competitive

and necessary work

Organizational Design Challenges Most

Leaders Misdiagnose

Now we’ve covered the basic organizational design steps, we’ll look at some common mistakes leaders

make at the outset of a design project. Usually, these relate to a misdiagnosis of the problem they need

to solve.

While some basic challenges of organizational design can be easy to predict and rectify - others can be

more nuanced and pernicious in nature. Being aware of these up front can give you an edge on

identifying and overcoming them.

Roles must be designed based on necessary work and outcomes —

NOT on people’s preferences or skills. There is no value to a role that

maximizes existing skills if those skills don’t help forward the

business agenda.

However, it’s still important to design roles so people are continually

challenged and fulﬁlled. It contributes to job satisfaction and helps

prepare individuals for future promotion to leadership roles.

5) Design clear, meaningful roles

Most reorganizations fail to consider the distribution of decision

rights. This is a huge mistake. The way decision rights are

distributed can either promote desirable behaviors and avoid

negative ones — or just the opposite.

A good decision architecture is foundational to how your

business works. It sets out the authority structures, roles, and

processes responsible for managing every aspect of the business.

By spreading decision rights fairly, you clarify what each role or

team is responsible for and give people the sense they play an

active role in the business’ future.

4) Distribute decision rights

To avoid dysfunction, decision-making systems must be set up to govern the natural conﬂicts that arise

around priorities and resources. Without this, no simple ﬁx will resolve the issue of competing priorities.

Simple organizational design addresses this issue by implementing governance to ensure all areas of

the business have input into the direction and leadership of the business.

It’s easy for individuals, teams, departments, and even leaders to become competitive. If left

unchecked, this can cause serious rifts and, ultimately, great inefﬁciencies.

Misdiagnosed Symptom: Competing priorities

Real Design Challenge: Poor governance

Quality roles are designed around desired outcomes, not people. Effective design deﬁnes the value of a

role by its impact on competitive performance. Each role should be deﬁned by the competencies

needed to deliver a set of deﬁned metrics to the business. When people are appointed to roles on this

basis, they are far more likely to engage with (and stay in) their roles.

Here’s the thing, widespread turnover is rarely the real problem. It’s prompted by something, and it’s

usually poor role design. While many people claim money and perks are their main motivators, the

truth is people rarely stay in positions where they feel smothered, stuck, overworked, or unrecognized.

Poor role design, which often arises over time, leaves some people stretched beyond their bandwidth

while others are stuck with boring roles that leave them feeling underappreciated.

Misdiagnosed Symptom: Unwanted turnover

Real Design Challenge: Bad role design

For teams to run effectively, the number of direct reports to each leader must be based on two factors:

the type of work and the amount of coordination that work requires.

At some point, everybody has had a boss they could never get hold of. When this happens on a wide

scale, the lack of direction can be disastrous. Businesses often wrongly assume it comes down to poor

time management or a lack of effort.

In reality, this issue usually goes far deeper than individual leadership practices. Usually, the underlying

issue is managers and leaders who have too many direct reports. This leaves insufﬁcient time to build

strong relationships with each team member, or even provide basic direction.

Misdiagnosed Symptom: Inaccessible bosses

Real Design Challenge: Excessive spans of control

Complex or high-risk work — e.g., scientists running clinical drug trials — requires extensive

coordination and beneﬁts from a narrow span of control.

Standard, more repetitive work — e.g., engineers writing technical code — is suited to more

autonomous employees, allowing for a wider span of control.

Redesign Your Organization For Success

Your employees are asked to devote a signiﬁcant proportion of their life to their work. That work should

be to better your business’ ability to compete and win as you serve your customers. And along the way,

your employees should be deeply gratiﬁed by knowing their work makes a difference.

Ensuring both of these organizational design elements are met requires clear and deliberate planning.

To ﬁnd out more about how Navalent can help you assess, redesign, and regenerate your business to

focus on its core purpose, visit here.

For that to be possible your business must do two things:

1. Funnel every employee’s passion and hard work into better customer outcomes; and,

2. Reward employees for engaging with their jobs and bringing the best they have.

Misaligned metrics pull teams in different directions towards conﬂicting goals. Over time, the

resentment that builds up can lead to poisonous behaviors and a lack of cooperation.

To solve this, engage conﬂicting teams in the creation of more appropriate metrics and incentives,

keeping in mind the ultimate goal of supporting the business’ wider objectives.

It’s easy to assume some departments will ‘never get along’. Sales and marketing are common culprits.

However, beneath these conﬂicts, you’ll often ﬁnd misaligned metrics or incentives that encourage rivalry.

Misdiagnosed Symptom: Cross-functional rivalry

Real Design Challenge: Misaligned incentives or metrics