Organizational Design

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Introduction to Organizational Design

Organizational Design is gaining more importance in human resource management as organizations are rethinking their role in the marketplace, their position vis a vis competitors, and their long term strategy. A key strategy in aligning the workforce with business goals, Organizational Design seeks to maximize workforce effectiveness while minimizing or maintaining costs. Five basic organizational structures are used in Organizational Design and adapted to an organization's needs. They are:

Functional Positions are grouped into work units based on functionality, such as human resources, finance or operations. Within work groups, positions tend to have similar skills, responsibilities and tasks.

Divisional Departments are grouped by their deliverables, output, or customers served. A Divisional organization may be grouped by product, service line or even geography.

Matrix Functional and divisional structures are combined into cross functional teams that integrate functional expertise wtih divisional expertise. In a matrix organization design, employees team members formally report to multiple leaders and are simultaneously members of different teams.

Team Separate functions are organized into a group focused on a single objective. Cross functional team members contribute to solving a single issue. This structure aims to eliminate functional boundaries and bring multiple perspectives to bear on a single issue.

Network A structure that often crosses organizational boundaries into partner or contract organizations, the Network structure creates a small hub of generalists, then a network of specialists to contribute specific skills or knowledge when needed.

Organizational Design vs. Organizational Theory

Organization design is a formal process of integrating the people, information and systems of an organization to its purpose, vision and strategy – with the goal of simplifying decision making, increasing performance and making the organization more successful. Also called organizational design, organization design is a holistic approach to designing and aligning structures, processes, leadership, culture and metrics within organizations. Major issues related to organization design include allocation of responsibilities, reporting relationships, and span of control. In other words, it’s all about people.

Organizational theory is the systematic study and application of knowledge about how people – both as individuals and as groups – act within organizations. Organizational design is the process of integrating those people into an organization’s vision and strategy in order to improve the efficiency and productivity of the organization.

Principles and Process of Organization Design

When senior management engages in organizational design, it looks at the work, people, structure and relationships and determines ways to optimize the organization. Step 1 in the process is to develop the organization's structure, roles, business processes and the decision-making framework. Step 2 is to align business process, workflow and governance. An org chart program can help illustrate the hierarchy of the organization and its functions, and facilitate the modeling of organizational scenarios.

Principles of organizational design include:

Organizational Design for Competitive Advantage

In today’s competitive business climate, organization design is a critical business activity. The following are typical reasons for an organization design or redesign.

  • Changes in the marketplace
  • Demands from customers
  • Pressure to reduce costs
  • Pressure to increase productivity
  • Regulatory changes
  • New division or product line
  • New business leadership
  • A merger or acquisition

Keys to Success in Organizational Design

The most important steps for success in organizational design include the design of a hierarchy, visibility of key metrics, and a clear path of communication throughout the process.

HR or executive teams can design the optimal workforce structure by implementing a hierarchy. From building a divisional structure for a large multinational to re-thinking project teams, the use of org charting software allows you to build a concrete baseline of your organization and predict and visualize future scenarios. To get the end product right, you must begin with an accurate baseline before using the software to facilitate scenario development.

Workforce cost, layers, headcount, Sarbanes Oxley compliance and other key metrics are important in evaluating the strength of each option. It is important that the dynamic calculations used to choose the proposed structure align with business objectives, regulatory requirements, and financial and cultural goals.

In org design, a picture is truly worth a thousand words. Preferably, the software implemented should combine useful, complex information to create a simple picture. Once the team has agreed to a few potential options, you can publish the chart online, or in PPT, PDF or Word to easily communicate results to employees, board members or other stakeholders.

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