Organization design: What you need to know

Memory Nguwi / Posted On: 16 May 2022 / Updated On: 3 December 2022 / Organisational Development / 962

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Organization design: What you need to know



What is organization design?

Organization design refers to the principles and processes by which an organization is structured and managed. Organization design is the process of aligning the people, processes, and systems of an organization to best meet the organization's goals and objectives. Organization design is a broad term that can encompass a range of different processes, but in essence, it's about making sure an organization is fit for purpose and ready to achieve its goals.

 

Organization design is the process of designing and improving your business to deliver the results you want. It's a way of thinking about the way your business is structured and how you can use the right processes and systems to get the best out of your people. It's about creating structures, processes, and systems that support your strategy and help you deliver the results you want. It's about finding the best way to get things done and making sure that everyone in your business is working together to achieve the same goals.


The problem with common organization design models

At the moment, most organizational designs are founded either on functions or products, with a minimal or nonexistent emphasis on process. Companies that are organized functionally have trouble satisfying the needs of customers in a seamless manner across all of their activities. This is because no one "owns" the issue of how long it takes or how much it costs to fulfill customer requests, so the problem can't be solved (Davenport, 1995). The same is true for organizations designed according to divisions, which means that their primary focus is on increasing market demand for the items they can create while ignoring the requirements of their customers and the nature of their professional partnerships.

 

A product organization is designed around product divisions. Customers increasingly desire bundled services. In many cases, there is no cross-divisional understanding of lateral action. Without lateral integration, divisional structures can not appropriately respond to client demands.

 

 A functional organization is structured around business functions and has a strong vertical orientation. The functional organization constrains process improvement since no organizational unit controls the whole process, despite many processes involving numerous functions.

 

A  matrix organization has a dual focus and responsibilities (for instance, process and functional dimensions). Despite its ability to handle more complicated business processes, this design paradigm is characterized by increased conflict and collaboration (Davis & Lawrence, 1977), unclear reporting lines, and excessive time spent on coordination activities and meetings (Galbraith, 2002).

 

Is there a perfect organizational design?

Designing an organization is a complex and challenging process. It requires a deep understanding of the organization's unique context, a clear vision for where it wants to go, and a plan. But it also requires a sense of when a design is no longer working and a willingness to change course. This requires an awareness of when the design needs to be adjusted and why.

 

When designing the perfect organization, there are a million and one different factors to consider. The size of the business, the industry it operates in, the people who run it and their skills and experience, and, of course, the aims and objectives of the business. All of these things will impact the structure and layout of the organization and the decisions that are made when it comes to designing the organization. But is there such a thing as the perfect organizational design?

 

The design of an organization plays a vital role in its success. The right design can help organizations better serve their customers, become more profitable, and generate better returns for their shareholders. On the other hand, the wrong organizational design can lead to inefficiencies and a lack of direction. With so much on the line, it's no surprise that many leaders have spent a significant amount of time and money trying to find the perfect organizational design.

 

We've all heard the saying that "form follows function." It's a simple concept that aims to explain how the way things are organized and structured is determined by the purpose they serve. In theory, the best organizational design is the one that best serves the purpose or set of purposes an organization is trying to achieve.

 

What triggers organization design?

Organization design (or redesign) is occasionally suggested to respond to internal or external events. External influences may include new market competitors, changes in regulation, new technology, or the need to dramatically lower operating expenses due to declining profit margins

 

The following are some of the reasons:

  1. Inconsistencies in performance—If the leadership of an organization identifies discrepancies in performance that are associated with structural concerns, they can consider launching an organization redesign.
  2. Shifting business models—the industry has been experiencing a great deal of transformation at the moment. Due to the challenges of competition, many businesses have been pushed to reevaluate the models that underpin their operations. After doing an analysis of your business model, you will find that modifications to your organizational structure are required.
  3. The strategic imperative: a periodic evaluation of strategy may reveal structural inadequacies, making it necessary to analyze the organization's current organizational structure.
  4. Changes in technology: Because of the volume and velocity of technological development, many companies are reevaluating how they may capitalize on technical advancement to steer their company strategy.
  5. Regulatory Changes: There are a lot of different regulatory changes that businesses have to deal with. The most important ones involve issues of climate change and consumer protection. Reviewing the organizational design may become necessary as a result of such developments.

 

What has changed in organization design

Over the past decade, we've seen a profound transformation in the way organizations are designed. It's been a shift driven by technology, the changing demands of the economy, and a new generation of leaders with a very different set of priorities and values. It's been a journey full of twists and turns, with a lot of false turns and dead ends. But it's also been a journey full of surprises, with many unexpected discoveries and some breakthroughs.

 

In the early days, managers designed org charts, which consisted of names on cards placed on a wall. Today, organizations use sophisticated software to design their structure and systems, using data and analytics to find the most efficient and effective ways of operating. The result is better-performing businesses and happier employees.

 

Over the last few years, there has been a lot of change in organizational design. We've seen an explosion of new tools and frameworks for designing organizations, and new ways of working, such as Holocracy and Holacracy, designed to support highly agile ways of working. But the biggest change has come from the impact of technology, which has enabled us to design new kinds of organizations that couldn't have been imagined even a few years ago. AI, in particular, is opening up exciting new design spaces and enabling us to take an entirely new approach to the question of how to design organizations.

 

 

Traditional organization design models

Hierarchical organization design

Hierarchical organization design is a management system designed to ensure that all employees have clear lines of communication and direction, usually via a clear chain of command. This is designed to ensure that all employees understand what they are required to do and to who they should report. This is designed to ensure that the organization can respond to changes in the environment and customers' needs as effectively as possible. The CEO is typically the highest-level employee in the hierarchy and ensures that the organization achieves its goals and objectives.

 

The primary purpose of a hierarchical organizational design is to ensure that all employees are clear about their roles and responsibilities within the organization. Large corporations and businesses often use a hierarchical organizational design. It is designed to ensure that all employees have clear lines of communication and direction.

 

The Galbraith star model is a model of organization design

The Galbriath star model is a model of organization design used to understand organizations and how best to improve them. It was created by Professor John Galbriath, an expert in organization design, to help organizations improve their efficiency and effectiveness.


Galbraith's star model of organization design is a flexible and adaptable system that allows for a wide range of company sizes and structures. The model is based on the five main functions of an organization: strategy, leadership, people, systems, and processes.


The strategy component of the star model refers to the goals and objectives of an organization, which can then be used to design a company's management team, organizational structure, and leadership style. This part of the model is often referred to as the 'building blocks' aspect.

 

The people component of the star model refers to designing the right people structure for an organization, which can be used to determine the roles and responsibilities of each employee and design a company culture that supports high performance.

 

The leadership function provides direction and motivation for employees; the systems function ensures that the organization operates effectively; and the process function, which ensures that the organization operates efficiently and effectively.

 

Process-based organizational design

The process paradigm, centered on the horizontal view of business operations and the alignment of organizational systems towards business processes, is the driving force behind the process-based organization design. Existing organization design theory does not provide more than broad principles for a process-based organization design model.

 

In this model, defining the essential business processes required to execute the strategy allows you to construct the organization needed to support the strategy (Browning, 1993). The design must be derived from the company's strategy and correspond to the organizational structure and business processes (Becker, Kugeler & Roseman, 2003).

 

One of the most significant differences between process-based organizations and traditional ones is that process-based organizations focus on the customer rather than departmental efficiency. They also measure and manage process-level results rather than departmental efficiency.

 

With regard to process-based organization design, horizontal dimension emphasis is the most important aspect. On the other hand, traditional organizational structures are more rigid, inflexible, and resistant to change.

 

To produce a more natural fit between work and structure the corporation organizes around essential business processes rather than functions (Vanheverbeke & Torremans, 1998; Ostroff, 1999).

 

The most beneficial strength of a process-based organization is that it increases flexibility and responsiveness to changing client needs. The structure focuses everyone on the customer, increasing satisfaction, productivity, speed, and efficiency. Employees are also more focused on organizational goals than departmental goals because there are no functional department borders (Daft, 2006).

 

New organization design models

The Holonic Enterprise Model of organization design

The Holonic Enterprise model is an organization design that focuses on creating a better experience for the people who use an organization's services, products or experiences. It sees an organization as a system of three components: the people who deliver services, the services themselves, and the experiences people have when they interact with the organization. The Holonic Enterprise model was developed by service design experts David Gray and Tom Paton and has been used by organizations to improve how they deliver a wide range of services, from healthcare to financial advice.

 

The Holonic Enterprise Model is a new approach to organization design to help organizations become responsive, agile, and adaptable in an increasingly complex and uncertain world. It is based on the concept of holocracy – a system of governance that combines elements of hierarchy and democracy.

 

The Holonic Enterprise Model has four layers: an outer ring, which is the outer perimeter of the organization; a middle ring, which is the decision-making layer; an inner ring, which is the delivery layer; and a core, which is the shared values and principles that guide the organization. The Holonic Enterprise Model aims to increase agility and responsiveness and to ensure that all parts of the organization are aligned with its purpose and values and that they are accountable for

 

In today's world, we're moving away from traditional hierarchies and adopting more fluid, collaborative working methods. This shift is best described as the Holonic Enterprise Model – an organization where people and systems are connected. It's a system where decisions are made when needed, rather than being deferred until a manager is available.


The McMillan Fractal Web organization design model

The McMillan Fractal Web is an organization design framework that uses the principles of fractal theory to create a highly adaptable and innovative organization. The McMillan Fractal Web has evolved to become a comprehensive framework that can be used to build a wide variety of organizations, including traditional businesses, single-purpose businesses, and complex organizations such as digital platforms and services.

 

The idea behind the McMillan Fractal Web design was to create a structure that was adaptable, fluid, and responsive to change. The design is based on the principles of fractal geometry, creating a structure that is both organic and scalable. It is designed to evolve and change over time as the needs of the business change. The aim was to build an organization that would allow maximum flexibility and agility, reducing the need for constant restructuring.

 

Ken Wilber's AQAL model of organization design

The AQAL model is an organizational design framework that incorporates the best of operating systems, management philosophy, and human development theory. The framework is based on the philosophy of Integral Theory, which philosopher and psychologist Ken Wilber developed.

 

Integral theory states that the world can be understood and explained as a series of interrelated parts, or levels of existence. Each level is made up of unique characteristics that can be understood through the perspectives of human development and the operating systems used to manage people and resources.

 

Ken Wilber's AQAL theory represents a significant contribution to understanding organization design. AQAL theory is based on the idea that human beings perceive and experience the world in four interrelated ways: as physical, in the form of matter; as biological, in the form of life; as social, in the form of human cultures; and as mental, in the form of ideas and systems of thought. The theory states that these four dimensions are interrelated. To understand the nature of human beings, we need to understand how the four dimensions of our experience and perception relate to each other.



The theory contributes to understanding organization design by giving a framework for comprehending the nature of the environment and the character of humans who perceive it. The theory also provides a foundation for designing the diverse structures required for optimal human development. The idea thus provides a framework for understanding the most efficient approaches to enable human beings to develop most effectively.

 

Organization design impact

The design of organizations impacts the lives of the people who work within them. The shape and style of an organization's leadership and management, the structure of its teams, the systems and processes it uses to achieve its goals, and the culture it creates all shape the experiences of those who work within it. This impact can be positive or negative and can have a wide range of effects on the people who work within an organization. Because of this, it is important for those who want to make a difference in the world to understand the impact of organization design on the people who work within it.

Design is the process of shaping a product, service, or experience to meet a goal. Designers use their knowledge of the human experience to create products, services, and experiences that solve problems and meet needs. Designers focused on creating beautiful, functional, and engaging experiences in the past. Over the last decade, designers have begun to focus on the impact of their work — from ethical considerations to social impact.

What is the impact of organizational design on the outcomes of a company? The impact of an organization can be measured in many ways. One way is to look at the impact of an organization on the lives of its customers and employees. This is commonly referred to as the business impact and often focuses on an organization's financial and market impact.

 

Conclusion

Organizations aren't simple machines. They're complex, dynamic systems that evolve and change over time. They're made up of people, processes, systems and things. They're also influenced by the wider world and economy, which are influenced by the actions of other organizations. Designing an organization is an iterative process of discovery and decision making.

 

As you navigate the process of organization design, simplicity matters. When you think about today's big organizations, such as Google or Facebook, you might think they are complex, sophisticated businesses. They have thousands of employees, large buildings, and intricate organizational structures. However, a closer look reveals that most modern organizations are very simple. The biggest companies in the world are built on simple principles such as delegation and autonomy, which allow small teams to accomplish huge goals.


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