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strategy and business
Published: August 27, 2013
 / Autumn 2013 / Issue 72

 
 

How to Design a Winning Company

“Yes. Don’t limit yourselves to the org chart. We can all agree the last redesign was a bust, and that’s one reason for it. You can’t simply shift people around and expect to truly change the way they work. You have to look at the other mechanisms that influence the way people make decisions—including their attitudes and our culture. Finally, let’s be clear: If you succeed, the company succeeds. And if you fail.…” She let the thought hang in the air before continuing. “One other thing: Don’t assume any individuals belong in any specific boxes. Once we figure out the overall design, we’ll sort out who does what.”

“Where do we start?” Sanjay asked.

Joanna slid a printout across the table. “Start here.”

The printout contained a diagram, taken from an article that Joanna had used before in other companies, a blueprint for effective organizational design (see Exhibit 1). It showed eight fundamental levers—vehicles for change—divided into two groups: formal and informal. Formal levers are factors that a company can precisely articulate, codify, and measure. These include the structure of the organization chart, along with incentives, decision rights, and rules that are fairly well defined. By contrast, the informal levers are factors embedded in culture, personal relationships, and behavior. They cannot be precisely codified, but they have a profound impact on an organization’s effectiveness and efficiency, because they represent the everyday habits of its people. In the same way that good product engineering must incorporate both software and hardware, good organizational design must incorporate informal elements along with formal rules and structures.

Like the elements of a string of DNA, the elements of organizational design can be divided into four “rungs” in a ladder. The first rung is related to authority and the governance of behavior. On the formal side are decisions—the statements, often set into rules, bylaws, or policies, that describe the underlying mechanics by which decisions get made, including how and by whom. They include aspects such as governance policies, approval processes (for everything from product launches to expenses), guidelines for delegation, and the creation of advisory panels.

At Seabright, Sanjay knew, there was a reasonably clear approval process for financial transactions. However, the approval process for new product development needed major changes. Ideas sprang up from multiple places, and they tended to get funding as a result of internal lobbying. Innovations in digital media were particularly prone to being overlooked. To rectify this, Jill and Sanjay would ultimately propose a cross-business-unit process that could collect, analyze, and prioritize competing projects—and that would give preference to digital products, especially those that analyzed user requests, profiled their likely interests, and customized information accordingly.

The informal counterparts of decisions are norms—the unwritten shared values and standards of behavior that lead people to expect others to act in certain ways. A norm is typically expressed in statements like “We rise to challenges. We never say ‘We can’t do it’ unless there’s no alternative.” Norms are often learned through apprenticeship, or passed down from mentors. They describe what separates the people who “belong here” from the people who don’t.

For example, at Seabright, people tended to discuss problems only when they could propose a workable solution. This led people to routinely understate challenges and propose small measures that tended to wither away without effect. Jill and Sanjay knew this component would have to change as well.

The next rung addresses the way the company governs behaviors. The formal elements, motivators, are traditional mechanisms for reward, promotion, and recognition. They include performance objectives and incentives such as bonuses and promotions. Motivators can be immensely influential.

 
 
 
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Resources

  1. Deniz Caglar, Jaya Pandrangi, and John Plansky, “Is Your Company Fit for Growth?s+b, Summer 2012: Organizational design can be an integral part of a more strategic approach to costs, helping companies prepare for the next round of expansion.
  2. Gary L. Neilson, Karla L. Martin, and Elizabeth Powers, “The Secrets to Successful Strategy Execution,” Harvard Business Review, June 2008: Why decision rights and information flow are better starting points for organizational leverage than fixing the lines and boxes on the org chart.
  3. Booz & Company Org DNA Profiler Survey: A short diagnostic tool that explores the formal and informal elements of your organization’s design.
  4. For more thought leadership on this topic, see the s+b website at: strategy-business.com/organizations_and_people.