Organization Design

A platform that incorporates the people, information, and technology in a company

Over 1.8 million professionals use CFI to learn accounting, financial analysis, modeling and more. Start with a free account to explore 20+ always-free courses and hundreds of finance templates and cheat sheets. Start Free

What is Organization Design?

Organization design is a platform that incorporates the key components of a company, namely people, information, and technology. Even though every organization is different, and there’s no specific formula for establishing the perfect organization design, there are several tenets applicable to every company.

Organization Design theme

Changes are happening all around us and at a rapid pace. All the drastic adjustments have left very little room for complacency. Considering how inevitable changes have become, managers need to focus on designing their organizations now more than ever. This way, they can transform their companies to better meet the needs of their clients, employees, and other stakeholders.

Principles of Organization Design

1. Focus on Long-Term Strategic Goals

One mistake that managers make is to concentrate too much on the present deficiencies of the company. Often, these leaders remain fixated on the short-term complaints they get from their employees, clients, or investors. But the right way to go about this is to focus on both the present and long-term company objectives. Adopting an organization design that only addresses immediate problems as they arise will only pave the way for more problems in the future.

2. Take Time to Survey the Scene

A study found that executives spend very little time evaluating the state of their organizations before adopting new designs. Too often, leaders make the false assumption that the current state of affairs in their organizations is clear. In reality, these managers are out of touch with their employees’ performance and how activities are actually being conducted internally. Gaining a better understanding of an organization before rushing to take on a new design helps to discover the root cause of current problems.

3. Selecting the Right Blueprint

A majority of organizations base their new designs on untested hypotheses. Although intuitive decision-making works in some cases, company managers should not depend on their intuition alone. So, rather than relying on that “gut feeling” when making that major sales decision, consult all the stakeholders involved and look at the data at hand.

4. Choosing the Right Specialists

One of the most neglected principles of organization design is emphasizing roles first and then individuals. Unfortunately, lots of managers do the opposite. They start looking for candidates to fill certain positions before job roles are clearly defined.

The problem with using this approach is that it stirs up anxiety among employees. It also creates the risk of losing expert technicians if they feel insecure about their job. It’s also very distracting since most employees will tend to focus on making big impressions instead of making their clients’ needs a priority.

The best way to deal with the matter is to use a talent draft. With a talent draft, each business department will gain access to the same professionals. This way, the most capable employees will end up in pivotal roles that have been designed with the company’s objectives in mind.

5. Anticipate Resistance

Often, managers view themselves as engineers and their employees as cogs that can be moved around. However, this should not be the case. An organization is made up of people who have fears, ambitions, goals, and feelings. As such, leaders should account for the possibility of their change recommendations being rejected and opposed.

Knowing this, the first step a manager should take is to recognize negative mindsets and seek to change the way they perceive the new design. There are several ways that leaders can try to solve the issue. They include providing a clear explanation of what the organization design is about, role-modeling the new mindsets, and putting in place measures that strengthen the design.

6. Performance Metrics are Key

No one would ever drive an automobile that has no speedometer. Similarly, company managers need not implement new organization designs if there aren’t any performance metrics in place. Without such metrics, there’ll be no way to assess your firm’s performance before and after adopting the new design.

Performance metrics determine the influence that the new design has on an organization. If the firm seems to be performing worse than it was doing before, then the executives can take drastic measures for improvement.

7. Manage Transitional Risks

In the rush to implement a new strategy, a majority of company managers forget to account for transitional risks. Every new design poses certain risks, from interference in business operations to employee defections and poor execution. The best way to reduce the impact of these risks is to identify them early and address them as soon as possible.

8. Going the Extra Mile

A firm’s reporting system is one of the most crucial and controllable aspects of its organizational structure. Unfortunately, most leaders focus too much on the design process and neglect other elements.

Apple and Pixar are two companies that run that extra mile. For instance, they take note of where their employees gather socially and how such interactions shape their behavior.

Benefits of Organization Design

A sound organization design offers the following advantages:

1. Clarity

Adopting a sound organizational design is important for every business regardless of the scale. It not only provides clarity in day-to-day operations but also in making key decisions and other activities.

A well-crafted organization design outlines the role of each stakeholder. In such a manner, employees know their duties, who they should reach out to for help, the timeframe for completing projects, the tasks that need to be prioritized, and more. Organization design goes a long way in improving operational efficiency, particularly when dealing with big corporations.

2. Growth

Another perk of creating a well-designed organization is that it makes it easier to take advantage of growth opportunities, as compared to a firm that is loosely organized. A good organization design incorporates technological infrastructure. This way, if the company manager thinks of adding a new employee, there will already be certain measures to follow in recruiting new people. An organization lacking solid design will find it difficult to undertake such activities.

3. Adaptability

A key feature of effective organization design is the capability to respond to the constantly changing marketplace and industry conditions. While most leaders prefer to focus on the business’ existing operations, the best organization design is one that leaves room for new market trends. Ideally, the design should be flexible enough to allow for any adjustments needed.

Benefits of Organization Design

Key Takeaway

Organization design is a combination of the key elements of a company, including structure, processes, and stakeholders. A sound design helps to provide clarity and it paves the way for growth. But if one is planning to adopt a new design for his or her company, there are a couple of factors to consider. They include focusing on long-term goals, managing transitional risks, anticipating resistance, and making use of performance metrics.

Additional Resources

CFI offers the Financial Modeling & Valuation Analyst (FMVA)™ certification program for those looking to take their careers to the next level. To keep learning and advancing your career, the following CFI resources will be helpful:

0 search results for ‘