Organizational Design Definition

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Contents

Overview

Organizational Design is the science (and art) of creating an organizational structure optimized to support strategic, business or cultural goals. It examines strategies, culture, structure, processes and more to achieve goals. An optimal design can improve efficiencies, drive desired behavior, spark innovation and distribute responsibility. Large organizations continually test and change their structures to address current market conditions.

Organizational Design is becoming more important in Human Resource Management as companies are rethinking and reworking their role in the market, 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.


Reasons for Organizational Design

The current business climate makes organizational design a critical business priority. Some of the common reasons for changes in an organization’s design are:

  • 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

Types of Organizational Structures

Five basic structures are used in Organizational Design, adapted to an organization's needs:

  • 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 with divisional expertise. In a matrix organization design, employee 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.
  • A network structure is one 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.

The Process

Organizational charts are very useful, as they allow decision makers to rapidly model their options, with metrics that show the impact of proposed changes. With detailed and intuitive charts, a company’s organizational design initiatives increase pace and allow for greater transparency.

Using visual organizational charts, HR or executive teams can design the optimal workforce structure, from building new project teams to building a divisional structure for a large multinational business. Accurate, current charts enable managers to take a snapshot of the current organization and then visualize future scenarios.

Beginning with an accurate snapshot is the best way to start. Data from multiple sources should be combined to provide an actual picture of the current structure. Once this baseline is fixed, then planners can actually see their options, rather than trying to visualize them. This allows them to quickly identify strengths and weaknesses. The discussion can move on to alternatives that may not have been considered initially and ultimately arrive at better decisions.

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