What is Organizational Design?
Do you want to know about organizational design in detail? Then, you are on the right post.
An organization’s design is a combination of art and science with regard to organizational design principles within business units. No one business strategy works best for developing a business model in which individuals can collaborate to accomplish shared objectives.
In this post, we’ll describe organizational design related to organizational success, the key factors that drive organizational design, and how to create an effective ORG design.
If you’d like to learn more about organizational design via video, watch the video below. Otherwise, skip ahead.
What is Organizational Design?
Organizational design is the management and implementation of a company’s strategic strategy. An organization’s strategy is an essential factor in determining its organizational structure and company culture. It also implies that there are no authentic best practices for corporate design.
Our Organizational Development Program discusses how organizational design is about finding the optimum match between an organization’s strategy, existing practices, and external environment.
The company’s strategic direction, often known as its vision, purpose, and objectives, has a significant impact on the design of the company’s internal structure, ORG chart, and operations. These lead to the company’s competitive strategies, supported by the organization’s structure and company leaders.
Maintaining one’s place in an existing market is an example of a company’s goal. This global company, e.g., a publishing company, will use a low-cost global branding approach emphasizing efficiency. With such an ORG design, this corporation will have robust, centralized control, strict control, and several standard operating procedures in its organizational architecture, thus improving its performance.
Any business unit that is a fast-growing, innovative, and learning-focused company should be flexible, with a decentralized structure, loose management, staff working one-on-one with clients, and rewards for risk-taking are some of this company’s design features. These are the most distinctive capabilities that should define how a company operates.
It is important to embrace any corporate self-reflection in any organization since even a few changes can have a tremendous effect on the organizational redesign. For instance, risk-taking and failure are penalized in business A. Still, risk-taking and failure are celebrated and evaluated in Company B, and the lessons learned from a failed project are utilized as a launching pad for a new one through the analysis of critical capabilities.
What are the Four Organizational Design Principles?
When it comes to organizational design, one of the most challenging aspects is deciding what we are creating. “The organization” is the most logical explanation. However, what are we attempting to start with regard to the company? Is it fostering employee technical skills or management professionals? Is the design aimed at improving external collaboration or focusing on fundamental principles point? Regardless, four organizational design concepts come into play here.
One such trend is the HR University. The publication Designing Effective Organizations by HR University serves as a good beginning point for a new organization and this discussion. HR University proposes four principles of organizational design.
These four guiding principles are in constant conflict when it comes to structuring an organization with regard to direct reports, customer-oriented commitment, personalized customer service, and removing management layers. To determine if the present circumstance is legitimate, each fundamental has its criteria for promoting accountability.
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To solidify our understanding further, in the future, we will use a variety of real-world examples, such as a national bank, to understand the organizational design process:
1. The Principle of Specialization
As stated in this organizational design concept, there are limits to fostering the development of specialized talents. Use this test to see whether any technological cultures (within a technology company), separate from the remainder of the company, are shielded from the dominant culture.
2. The Principle of Cohesion
An essential part of effective project management is performing all work as a single team by working on more tangible building blocks.
A business entity, corporate function, (horizontally coordinated) overlays unit, sub-business, core resources unit, existing executive team members’ committee, outsourcing unit, venture unit, customer segment unit, or parent unit might all fall under the umbrella of this unit. How difficult is it to get departments to work together effectively?
‘Difficult linkages,’ as the term implies, are those in which typical networking cannot give coordination advantages. Since it carries emotional weight, it may require ORG redesign if management, like CEOs, anticipates significant issues like customer behavior creating disruption.
Coordinating efforts are simpler or centralized responsibilities within one group through an ORG chart. The organizational design may employ various units, as seen in the next section.
3. The Principle of Knowledge and Competence
According to this theory, senior executive positions are assigned to those most suited to do them. Both functional managers and divisional leaders have a higher chance to hold on to their jobs because of their expertise and comparative advantage. Unless this is true, they are placed lower in the company hierarchy to attract customers.
This implies that the CEO must not engage in every decision, particularly those requiring experts with a great deal of expertise in their field, such as customer demand. By doing so, companies reassign decision rights to individuals in charge of keeping things in perspective and balancing difficult choices that influence the company and its long-term goals.
However, a company should have proper knowledge-sharing systems for this to work.
4. The Principle of Self-Government and Personal Accountability
The basis of this idea is the notion that one should exert effective control while engaging and committing simultaneously. There’s always a fine line to walk here. As a result, the test is whether or not the unit’s control ORG redesign is congruent with its mandate and cost-effective in accomplishing and energizing its members.
For example, a $30 keyboard purchase would be demotivating, so lower levels of the business would be more adaptable.
It is the concept of innovation and adaptability. According to this notion, organizational structures and intangible building blocks are adaptable to an ever-changing reality. There is an evaluation of how well organizational design aids in new strategy formulation and adaptability to future changes for many companies.
Here, we’ll present a case study of a company that couldn’t keep up with the pace of change and emphasized community ties, which resulted in significant losses to the bottom line.
The organization’s micro and macro environment influences these four principles. We discussed strategies earlier in the conversation. To retain its share of the same industry and profit margin, the previously stated Company A planned to do so. This corporation will profit from more self-directed projects, a hierarchical organizational structure, more specialization, decreased coordination, increased accountability and control at the highest levels of the organization, and a more specialized workforce.
It is possible to (re)design an organization using these four principles of an ORG chart, which helps the organizational designer better understand the support functions that influence corporate design.
What are the Five Variables that Influence the Organizational Design?
Five elements have a significant effect on the design of an organization. These are the aspects that you should keep in mind:
1. Strategy
It is the organization’s strategy that determines the organization’s strategic priorities. It is the most significant aspect of the design and structure of an organization. If the organization resisted the proposed ORG chart with simple elements such as direct reports, then the organization’s strategy could change.
2. Environment
Strategy and positioning are influenced by the environment in which a firm works. An organization is more flexible in a fast-changing environment but more efficient in a more stable setting. Keep in mind that the nature of the environment defines reporting relationships within the company as far as seven direct reports.
3. Technology
The use of information technology aids decision-making. The condition of IT also influences organizational design. An organizational structure and design and the capacity for hierarchical control will differ during system implementation and decision-making on data rather than disorganized Excel sheets.
4. Size and Lifespan
Structure and design are also affected by the size as well as the life cycle of a company. A 20-person firm has different issues than a 200,000-person regarding organizational design.
5. Business Units Culture
Organizational culture is another vital factor influencing organizational design and layout – and vice versa.
After incorporating the five characteristics we discussed earlier into the design of your company, you will have a successful one. It refers to a company that can accomplish its stated objectives and purpose.
It is challenging to quantify an organization’s performance as it is only half the story. When you do it right, though, you can use the signals inside the institution to help you make changes in the organization.
What are Three Ways to Measure the Success of an Organization?
The basis of these techniques is in various stages of the manufacturing process. They used an IPO model with regard to controversial national bank catering in this example.
- The Ability to Manage Resources. The first sign of an organization’s effectiveness is its ability to manage its resources. This technique focuses on inputs to determine if an organization can get the resources essential for top-notch performance.
- Internal Methods. The Internal methods examine the efficacy of the production process by looking at the organization’s internal health and socioeconomic efficiency. Examples are a strong culture, trusting communication, effective decision-making, undistorted information exchange, and engagement between the institution and its components.
- Indication. The goal approach is the third indication. This method evaluates an organization’s performance by examining how effectively it accomplishes its objectives. The most important thing is to concentrate on achieving operational goals, which are more straightforward to define and quantify.
Final Remarks
After reviewing the four fundamental values of organizational design, which include coordination, specialization (expertise), control (commitment), and innovation (and adoption), we conclude this post on corporate design.
A variety of variables influence these concepts. Organizational strategy, microenvironment, technology, organizational size, and life cycle are all included in this. The many organization design concepts are put under strain by these considerations.
These four principles determine the organization’s structure. However, they may sacrifice expertise to achieve high levels of cooperation within a company. Innovation and adoption miss out on a company that is too focused on control and commitment. It comes down to it: organizational design and layout are all about making the right choices to help the company achieve its business objectives.
Let us know if you have any additional thoughts or suggestions in the comments section below.
FAQs
Here are answers to some of your most asked questions regarding organizational design:
What is the role of organizational design?
Organizational design is a procedure used to structure the way a company operates. Its role is to offer companies assistance in pursuing their strategies and achieving the desired outcomes. It includes setting up structures and systems, in addition to helping resources adapt to new, different ways of working.
What are the guiding principles of organizational design?
The organizational design depends on five guiding principles: specialization, coordination, knowledge and competence, control and commitment, and adaptation and innovation. It is a tug-of-war between these five principles since each has its test to see if the current situation is valid.
What influences the design of a company’s leadership team?
Several factors, including strategy, internal and external environment, innovation, size and life cycle, culture, etc., influence organizational design.
Why is organizational design important?
Organizational design is important as it can impact organizational performance and effectiveness, including efficiency. It can enhance the utilization of resources and employee engagement, remove waste and duplication, and streamline work operations.
What are the four types of organizational design?
The four types of organizational design are functional, divisional, flat, and matrix structures. Both functional and divisional structures divide the firms into different departments. While the flat structure offers autonomy to employees, the matrix structure matrixes employees across different divisions or departments.
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