Managing the Downside of Organization Structure|
The purpose of this short paper is to alert you to some practical issues related to changing organizational structure. My experience is that line managers, using their HR staff, often take on the task of restructuring the organization, particularly at the middle levels. High-priced consultants armed with knowledge of "Organizational Architecture" are not affordable at this level of the organization. Therefore, this paper highlights the key things you should be thinking about as you go about that restructuring - including the issue of managing the downside that inevitably accompanies any given structure. Note that in this paper I use IT as a functional organization to illustrate points. There would be some variation, as you can imagine, based on the type of organization you are restructuring.
Where to Begin?
To start, first always ask yourself: What objectives are we trying to achieve through changing the organizational structure and the related organizational design elements and supporting mechanisms? A good deal of thought should go into the discussion of what you are trying to accomplish, and consensus needs to be built with the leaders in the organization. Here are examples of things one could reasonably expect to achieve by re-working structure in an IT organization:
- Increased customer/partner focus and/or better alignment with customer/partner needs
- Improved cost effectiveness of service and project delivery; achieved by
- Leveraging global buying power to provide lower costs solutions
- Increasing effective use of productivity enhancing technology
- Leveraging experience curves, transferring new technology better and quicker throughout a global system
- Reducing slack in the system, for example, by minimizing high skilled people doing low skill work or not being fully occupied, or by more accurately matching staffing levels to workloads.
- Improved response time to the customer/partner; including
- Faster problem resolution
- Lowering the level of decision making (empowerment) so decisions can be made at the right level, quickly
- Improved integration of IT across all regions and functions
- Sharing of best practices and experiences
- Transferring technology and knowledge effectively
- Helping to deploy global solutions, one email system, or platforms for implementing enterprise wide systems quickly and efficiently.
- Higher maintained levels of technical excellence in selected core areas
- Better understanding of roles and responsibilities inside the organization
- Greater flexibility to meet ad hoc, new or unanticipated needs.
Available Organizational Design Options:
What general organizational design options are available to us, and what are their key strengths and weaknesses? All organizational designs have an upside and a downside. As soon as you install a particular organizational design, the weaknesses begin to become apparent; if not managed they can overwhelm the organization. Table 1, below, shows the key strengths and weaknesses identified in the literature on standard organizational designs. Table 2 is a list of common compensating mechanisms to help make organizational designs work. The key is to manage the downside that comes with whatever standard design you select. You also use the same compensating mechanisms to reinforce the desired outcomes. Keep in mind that large organizations are often a complex mix of these structure types. So you have to think about the particular structure you are installing and apply the right mechanisms to both manage the downside and reinforce the desired outcomes. Below are two simple examples of to illustrate the point.
Structure without effective use of compensating or reinforcing mechanisms is doomed to failure. Just moving the boxes around will not solve many problems: it will just create a different set of problems.
We decide on a service team approach for a particular IT unit. In this example all phone calls from end users having problems with the software on their desktop come to one location, where they are either handled or given to more skilled people for resolution. The original person accepting the call is charged with seeing that the user's needs are eventually meet, even though someone else may be responsible for addressing the problem. Immediately one begins to think about the challenges: how to keep this group up to date technically, because the tendency will be to maximize the time they are on-line with the user. If you don't look out, they will be always on line and their technical know how will quickly erode, as well as, their ability to solve user problems. To correct this, you could put in extra training dollars and have a buffer in staffing which allows people to cycle out for training regularly. You are concerned about size limits of teams, so you could break the teams on geographic or time zones, which creates more focus and enables a size (8-20 people) that feels more team-like. You tie performance appraisals to team performance as much as you can. You use the recognition and reward system to reinforce teamwork and team performance. You use information technology to allow all members of the team to track a service request, so that anyone answering for the team knows the history of the transaction.
You have a matrixed approach to doing IT projects. You know that role clarity and alignment are typical problems associated with a matrix, so for a large project you create a steering committee made up of stakeholders with decision-making authority. A significant part of the steering committee's bonus is tied to the achieving project outcomes. You have several off site team building sessions focused on project outcomes, role clarity, and identifying issues. You tie the project team's appraisal, incentive bonuses and recognition to meeting team outcomes.
Ten Key Principles to Remember about Organizational Design:
- Organizational structure must follow strategy and support the strategy and corresponding objectives.
- The higher the degree of uncertainty and change relative to technology and markets, the organization faces, the greater the need for organizational structure flexibility.
- How you deal with integration in structure is a significant key to success. Structures often fail at the boundaries: great organizations are able to work across boundaries to get the job done quickly and cost effectively.
- When you want to reduce cycle time or focus on time reduction:
- Organize around the main sequence; ask what is the main sequence of your value adding activities.
- Activities that are not critical to the main sequence should be taken off line so they don't slow down the cycle.
- Once you have isolated the main sequence, use TQM principles to improve the processes.
- Use small Closed Loop teams with all the skills, people and resources to respond quickly to customer needs. Teams should have decision-making ability and be self-scheduling. This requires a great deal of empowerment and the right culture to be effectively
- Employees value a job that is designed to be central to the business and has meaning, purpose, dignity, respect, challenge and prospects for advancement.
- The further decisions commit the company in the future, and the greater the impact on other functions, the higher the decision should be made. Recurrent decisions should always be made at lowest possible level.
- Build the fewest layers of management and maximize the managers' span of control to minimize the number of units to be integrated. This greatly impacts costs.
- Split groups tend to force decision making to the top. For example, if sales does not report to marketing, but both report to the general manager, then many natural conflicts about short and long term sales strategy will find their way to the general manager's desk, or go unresolved, rather than be solved at a lower level. If you want speed in key decisions, avoid splitting natural groups.
- Move variance control as close to the point of variance as possible. This allows for quick response time and encourages accountability.
- Service staffs should be few and focused on key activities, where the most value is added. They tend to add costs and slow things down if not managed well.
Table 1 Key Strengths and Weaknesses of Typical Organizational Structures:
Organizational TYPE|| STRENGTHS || WEAKNESSES|
Functional e.g.'s Applications, Infrastructure|| technical excellence || not customer focused not cost effective tendency to lose sight of business objectives slow response time|
Team based service teams to address customer problems, Project teams, Cross-functional Teams, etc.|| integration flexibility response time|| lacks focus on technical excellence size limited role clarity/alignment|
Networked where there is an internal core team, and various vendors are used to supplement & support the core team. || cost effective load levels technical excellence flexible|| response time customer focus competitive advantage risks|
Matrixed combination of functional and project or geographic structures which usually focus on some work task like a project.|| technical excellence flexibility integration|| role clarity customer focus|
Divisional focus on units to service different lines of business|| customer focus|| integration load levels cost effective|
Geographic regional || customer focus cost effectiveness|| integration load level flexible technical excellence|
What organizational design elements and supporting mechanisms do we have available to manage the downside of the organizational structure changes, allowing the selected design to achieve maximum effectiveness?
Table 2 Compensating Mechanisms
MECHANISM key mechanisms|| POSITIVE IMPACT use as needed given weaknesses of structure or to reinforce goals|
Information technology this is anything from effective tools deployed, to email systems, to good use of Lotus Notes and principles of knowledge management.|| Integration Improve communication Improve response time Improve technical excellence Controls|
Reward systems anything from how appraisals are done, to bonuses, to recognition systems|| customer focus technical excellence role clarity team work|
Selection - leaders and team members|| customer focus technical excellence role clarity team work|
Systems, processes, policies and procedures - that impact delegation of authority and empowerment|| response time cost effectiveness controls|
Skill development/tools|| technical excellence|
Business or field experience|| customer focus cost effectiveness|
Partnering|| integration response time technical excellence|
Integrating roles coordinators, account managers|| integration rapid response customer focus|
Spans of control & layers|| cost effectiveness fewer of each, the lower the cost|