An effective enterprise ensures that collective effort is organized to achieve specific ends. Organizing involves dividing the overall management task into a variety of processes and activities and then establishing means of ensuring that these processes are carried out effectively and that the activities are coordinated. It is about differentiating activities in times of uncertainty and change, integrating them – grouping them together to achieve the organization’s overall purpose – and ensuring that effective information flows and channels of communication are maintained.

Organization design

Organization design is based on the analysis of activities, processes, decisions, information flows and roles. It produces a structure that consists of positions and units between which there are relationships involving cooperation, the exercise of authority and the exchange of information.

Within the structure there will be line managers who are responsible for achieving results in the organization’s key areas of activity by managing teams and individuals, and specialists who provide support, guidance and advice to the line.

The structure must be appropriate to the organization’s purpose and technology, and the environment in which it exists. It must be flexible enough to adapt itself easily to new circumstances – organization design is a continuous process of modification and change; it is never a one-off event. It must also be recognized that, although the formal organization structure may define who is responsible for what and the ostensible lines of communication and control, the way in which it actually operates will depend on informal networks and other relationships that have not been defined in the design process and arise from people’s daily interaction.

The approach to organization

Organization design aims to clarify roles and relationships so far as this is possible in fluid conditions. It is also concerned with giving people the scope and opportunity to use their skills and abilities to better effect – this is the process of empowerment.

Jobs should be designed to satisfy the requirements of the organization for productivity, operational efficiency and quality of product or service. But they must also meet the needs of individuals for interest, challenge and accomplishment. These aims are interrelated, and an important aim of organization and job design is to integrate the needs of the individual with those of the organization.

When it comes to designing or modifying the structure a pragmatic approach is necessary. It is first necessary to understand the environment, the technology and the existing systems of social relationships. An organization can then be designed that is contingent upon the circumstances. There is always some choice, but designers should try to achieve the best fit they can. And in making their choice, they should be aware of the structural, human, process and system factors that will influence the design, and of the context within which the organization operates.

Organization design is ultimately a matter of ensuring that the structure, processes and methods of operation fit the strategic requirements of the business and its technology within its environment. Disruption occurs if internal and external coherence and consistency are not achieved. And, as Mintzberg suggests: “Organizations, like individuals, can avoid identity crisis by deciding what they wish to be and then pursuing it with a healthy obsession.’

Organization design is always an empirical and evolutionary process for which absolute principles cannot be laid down. But there are a number of broad guidelines that should be taken into account even if they are not followed slavishly.

Organization guidelines

Allocation of work

Related activities should be grouped logically together into functions and departments. Unnecessary overlap and duplication of work, either horizontally or vertically within a hierarchy, should be avoided.

A matrix organization may be developed, in which multidisciplinary project teams are created specially to accomplish a specified task but the members of those teams are responsible on a continuing basis to a functional leader, who allocates them to projects, assesses their performance, provides rewards and deals with training and career development needs.

Close attention should be given to the processes within the business. These are the interconnected sequences of activities that convert inputs into outputs. Thus, ‘order fulfilment’ is a process that starts with an order as its input and results in an ‘output’: the delivery of the ordered goods. The organization design should ensure that the flow of such processes can proceed smoothly, efficiently and effectively.

Business process re-engineering can help to achieve this by subjecting the processes that link key organizational functions together – from initiation to completion – to critical examination and, as necessary, redesign. It is sometimes better to organize these processes properly before becoming over-involved in the design of rigid structures that can inhabit the flow of work.

The work that needs to be done and responsibilities for results should be defined and agreed with teams and individual jobholders.

Matters requiring a decision should be dealt with as near to the point of action as possible by individuals of self-managing teams. Managers should not try to do too much themselves, nor should they supervise too closely.

Levels in the structure

Too many levels of management and supervision inhibit communication and teamwork and create extra work (and necessary jobs). The aim should be to reduce the number of levels to a minimum. However, the elimination of middle managers and wider spans of control mean that more attention has to be paid to improving teamwork, delegation and methods of integrating activities.

Span of control

There are limits to the number of people anyone can manage or supervise well, but these vary considerably between different jobs. Most people can work with a far greater span of control than they imagine, as long as they are prepared to delegate more effectively, to avoid becoming involved in too much detail, and to develop good teamwork among the individuals reporting to them. In fact, wide spans of control are beneficial in that they can enhance delegation and better teamwork and free the higher-level manager to spend more time on policy-making and planning.

Limited spans of control encourage managers to interfere too much with the work going on beneath them and therefore constrain the scope that should be given to their subordinates to grow with their jobs.

One person, one boss

Generally speaking, individuals should be accountable only to one boss for the results they achieve, to avoid confusion on operational matters. But in a project-based on matrix organization, individuals might be responsible to their project leader for contributing to the outcome of the project while also being responsible to their departmental manager or the head of their discipline for the continuing requirements of their role and for achieving agreed standards of overall performance.

Individuals in functional roles such as finance or personnel may be directly responsible to a line manager but may also have a ‘dotted line’ relationship of responsibility to the head of their function on matters of corporate policy.

Individuals in functional roles such as finance or personnel may be directly responsible to a line manager but may also have a ‘dotted line’ relationship of responsibility to the head of their function on matters of corporate policy.

Decentralization

Authority to make decisions should be delegated as close to the action as possible.

Optimize the structure

Develop an ideal organization by all means, but also remember that it may have to be modified to fit in the particular skills and abilities of key individuals.

Relevance to organizational needs

The organization has to be developed to meet the needs of its situation. In today’s conditions of turbulence and change, this inevitably means a tendency towards more decentralized and flexible structures, with greater responsibility given to individuals and an extension of the use of task forces and project teams to deal with opportunities or threats. This implies an informal, non-bureaucratic, organic approach to organization design – the form of the organization will follow its function, not the other way around.

The organization may be largely based on multidisciplinary project teams, as in a matrix organization, or greater emphasis will be placed on ensuring that flows of work involved in the key business processes are properly catered for rather than the creation of a traditional formal and hierarchical structure.

The process of organization design

The process of organization design is to:

• define what the organization exists to do – its purpose and objectives;
• analyze and identify the processes, activities or tasks required to achieve those objectives and, as appropriate, the flow of decision-making and work throughout the organization;
• allocate related activities to teams and individual jobholders as appropriate;
• group related activities carried out by teams and individual jobholders logically into organizational units, while ensuring that the flow of work across organizational boundaries is not inhibited;
• provide for the management and coordination of the processes and activities at each level of responsibility;
• ensure that attention is given to developing the processes of teamwork and communication;
• establish reporting and communicating relationships;
• recognize the importance of informal networks as means of communicating information and joint decision-making;
• provide, as far as possible, for organizational processes to adapt to change.

Defining structures

Structures are usually defined by means of organization charts. Such charts have their uses in planning and reviewing organizations. They can indicate how work is allocated and how activities are grouped together. They show who is responsible to whom, and they illustrate lines of authority. Drawing up a chart can be a good way of clarifying what is currently happening: the mere process of putting the organization down on paper will highlight any problems. And when it comes to considering changes, charts are the best way of illustrating alternatives.

The danger with organization charts is that they can be mistaken for the organization itself. They are no more than a snapshot of what is supposed to be happening at a given moment. They are out of date as soon as they are drawn, and they leave out the informal organization and its networks. If you use little boxes to represent people, they may behave as if they were indeed little boxes, sticking too closely to the rule-book.

Charts can make people very conscious of their superiority or inferiority in relation to others. They can make it harder to change things, they can freeze relationships, and they can show relationships as they are supposed to be, not as they are. Robert Townsend said of organization charts: ‘Never formalize, print and circulate them. Good organizations are living bodies that grow new muscles to meet challenges.’

Defining roles

Role profiles, sometimes called role definitions, describe the part to be played by individuals in fulfilling their job requirements. They therefore indicate the behaviour required to carry out a particular task or the group of tasks contained in a job – they will set out the context within which individuals work as part of a team as well as the tasks they are expected to carry out.

The traditional form for defining roles is the job description, but, like organization charts, job descriptions can be too rigid and stifle initiative. It is better to use a role profile format along the following lines:

• role title;
• reporting relationships;
• main purpose of the role – a brief description of what the role exists to do;
• key result areas – the main areas of responsibility defined in terms of the results expected, without any attempt to go into any detail of how the work is done;
• competencies – the behavioural competencies required to carry out the role (behavioural competencies specify the types of behaviour required for successful performance of the role.)

A role profile focuses on outcomes and behavioural requirements rather than tasks or duties. It does not prescribe in detail what has to be done.

Implementing structures

At the implementation stage it is necessary to ensure that everyone concerned:

• knows how they will be affected by the change;
• understand how their relationships with other people will change;
• accepts the reasons for the change and will not be reluctant to participate in its implementation.

It is easy to tell people what they are expected to do; it is much harder to get them to understand and accept how and why they should do it [Is a witch]. The implementation plan should therefore cover not only the information to be given but also how it should be presented. The presentation will be easier if, in the analysis and design stage, full consultation has taken place with the individuals and groups who will be affected by the change. Too many organizational changes have failed because they have been imposed from above or from outside without proper consideration for the views and feelings of those most intimately concerned.

Implementation is often attempted by purely formal means – issuing edicts, distributing organization manuals or handing out job descriptions. These may be useful as far as they go, but while they provide information, they do not necessarily promote understanding and ownership. This can only be achieved on an informal but direct basis. Individuals must be given the opportunity to talk about what the proposed changes in their responsibilities will involve – they should already have been given the chance to contribute to the thinking behind the change, so discussions on the implications of the proposals should follow quite naturally. There is no guarantee that individuals who feel threatened by change will accept it, however much they have been consulted. But the attempt should be made. Departmental, team and inter-functional meetings can help to increase understanding. Change management is discussed elsewhere..

The implementation plan may have to cater for the likelihood that all the organizational changes cannot be implemented at once. Implementation may have to be phased to allow changes to be introduced progressively, to enable people to absorb what they will be expected to do and to allow for any necessary training. Changes may in any case be delayed until suitable people for new positions are available.

Notes

1 Mintzberg, H (1981) Organization design: fashion or fit, Harvard Business Review, January-February

2 Townsend, R (1970) Up the Organization, Michael Joseph, London

To establish how well – or how badly – you are doing, to identify areas for improvement and, importantly, to get new ideas, it pays to compare your organization with its best-performing peers. You need to study what the ‘best-in-class’ companies are doing – how well they perform generally in comparison with your business, how well they carry out specific activities and processes, and what they are doing that is new and different and might work well in your company.

Asked what he thought of his wife, James Thurber replied: ‘Compared with what?’ Whatever we are comparing – products, practices, processes, output levels, performance achievements – we all seek yardsticks or measures to enable meaningful comparisons to be made. This is what benchmarking is about.

How does benchmarking work?

The purpose of benchmarking is to identify areas for improvement and stimulate change. It can be defined as:

A continuous, systematic process of evaluating companies recognized as industry leaders, to determine business and work processes that represent ‘best practice’ and establish rational performance goals.

Benchmarking processes can be analyzed under four headings:

1. competitive analysis – the systematic analysis of competitive activity so that performance can be improved;
2. best practice – looking for best practice in the ways in which companies operate;
3. performance comparison – assessing company performance against that achieved by comparators;
4. standard setting – providing guidance on setting appropriate and stretching performance standards.

The underlying logic of benchmarking is compelling: unless you know what the competition is doing, and how your customers rate your efforts on a comparable basis, how can you establish meaningful goals for improvement? Without benchmarks, the impact of improvement programmes can be a lottery; raising standards to an industry average, for example, is not the same as leap-frogging rivals. Benchmarking helps to set targets that enable companies to achieve sustainable competitive advantage.

What do you benchmark?

Anything that drives or measures performance can be benchmarked. Examples include productivity, product quality, standards of service delivery, cycle times, pay, fund management performance, product and service characteristics, employment ratios and employee engagement data.

Benchmarking sometimes concentrates on overall performance indices and ratios, but it often produces the best results when it compares operational or process performance levels so that specific standards and targets for improvement can be set. When valid and reliable competitive data are available on, say, delivery times, managers who will not accept that it is possible to improve their performance can be told: ‘If they can do it, then so can you.’

With whom do you benchmark?

Ideally, you benchmark with direct competitors, especially those that are operating in similar circumstances to your own. But direct competitors may be unwilling to exchange information. In any case, useful comparisons on similar aspects of management or business operations can be made without out-of-sector companies.

How do you benchmark?

Some organizations seek outside help but it is possible to run your own benchmarking exercise. This could consist of the following stages:

1. Plan – make decisions about what is to be benchmarked. You cannot do everything at once, so you must focus on those areas that are likely to deliver the greatest returns – the drivers of performance.
2. Collect data – decide on sources of data (other organizations, published benchmarking data, information from employers’ or trade associations, etc). Approach any organizations you select, making sure you contact the right people, ask the right questions and evaluate the information you receive. You have to bear in mind that some organizations will put forward the most favourable picture of their performance. They may not deliberately distort it, but it is probably best to treat any information you are given by competitors with several large pinches of salt.
3. Analyze results – compare the figures and other information provided by different organizations and ensure that, as far as possible, you are comparing like with like. Make allowances for any operational differences that might affect the data. If you are getting information on policies, practices or processes, remember that what works well in one organization might not necessarily work well in yours. People talk about best practice as if it were universally applicable. But it is not. What you do must fit the circumstances of your own organization. Best fit is more important than best practice.
4. Decide on action – on the basis of the analysis take a realistic view of what the data tell you needs to be done. Following that assessment, decide on any changes or innovations that emerge as appropriate and that can be implemented without difficulty. A cost-benefit analysis can usefully be made at this stage to show whether any contemplated action is worthwhile.
5. Implement – plan the implementation programme carefully – good ideas can too easily go wrong if they are initiated without sufficient care. It is generally best to pilot test any new system. Any changes will have to be managed with equal care.
6. Review progress – take stock of how the innovation or changed arrangement is going and take swift corrective action if required. If problems have arisen, it may be necessary to obtain new information from different sources to provide further guidance.

What factors should be taken into account?

The following factors should be taken into account in analyzing and using benchmark data:

• Bencharking is likely to be most effective if the company has a clear vision of where it wants to go and well-articulated strategies for realizing that vision. It should know what its critical success factors or distinctive capabilities are – the drivers of organizational performance.
• Even if like-for-like comparisons can be made between the results achieved by different companies, if these are just in the form of numerical data they may well be insufficient – figures do not tell the whole story. It’s what was done to achieve those figures that counts. That is why benchmarking should cover processes and practices as well as outcomes.
• Because practices are not necessarily transferable, it is necessary to analyze what aspects of them might work if they were modified to fit the requirements of your organization.
• Even if you obtain good, reliable information from a number of sources, it still requires considerable skill and effort to translate this into meaningful and actionable terms for your organization.
• Make sure that organizations provide information on what they are actually achieving, not their intentions for the future.

• There is often as much to learn from the failure and bad practices of comparator organizations (if you can find them out) as there is from their success.