Designing Organizational Structures That Work

by Caroline Hodgkins, January 18th 2013  

In our experience, many organizations are quick to restructure. While restructuring can be a powerful tool to change the way people work, it can also cause disruption. A poorly-designed organizational structure can be counterproductive; it can lead to confusion of roles and responsibilities, reduce effectiveness, and delay decision-making. It's therefore critical that leaders think holistically when designing their organizations.

In architecture as in business, a common principle prevails: form must follow function. The design of an organization's structure must be based on what's needed to get the work done efficiently and effectively. Steve Jobs once stated, "Design is a funny word. Some people think design means how it looks. But of course, if you dig deeper, it's really how it works." Too often, leaders jump immediately to drawing boxes on a chart when designing their organizations. Their focus is on how the organization looks. The danger is that they define a sub-optimal organization, i.e., they define roles based on what's worked in the past or political affiliations. This ultimately constrains performance.

In contrast, the best organizational designs start by focusing on what the organization needs to achieve going forward and how the work must get done. In this approach, defining roles and reporting relationships occurs relatively late in the design process. Specifically, we recommend a five-step process for organizational design:

  1. 1. Mission: Identify Purpose and Goals
  2. 2. Process: Define Optimal Workflows
  3. 3. Roles: Agree on Roles and Responsibilities
  4. 4. Structure: Determine Reporting Relationships
  5. 5. People Practice: Build Systems to Drive Behavior

1. Mission: Identify Purpose and Goals

The first step in defining an effective organizational structure is knowing what the organization's purpose is. What is its reason for being? What does it exist to achieve? What value or services does it provide to its customers? Where does it want to be in at the end of the year, in five years? Often it is as important to define what the organization does not do. Everyone may agree that the project management organization is responsible for managing new product development (NPD) projects but some may be surprised to learn this doesn't include projects outside of the U.S. or simple ingredient changes.

In addition, defining an organization's mission is one thing, getting the organization's leadership aligned around that mission is another. For a mission to serve as an effective foundation for organizational design, the mission must be agreed to and interpreted in the same way by the entire senior leadership team.

2. Process: Define Optimal Workflow

Once the mission is identified, the key workflows that enable achievement of that mission are defined. In today's work environment, it's rare that important activities can be carried out by an individual or even a single department. Most critical business processes involve multiple handoffs between different functions. Take new product development for example. The successful creation and commercialization of new products require, at a minimum, that Marketing, R&D, and Manufacturing all collaborate effectively. The execution of these processes occurs horizontally, across the organization, versus vertically within a single function. Understanding how these workflows occur is critical to good organizational design. Alternatively, if these horizontal workflows are not well understood, the organization risks cementing in place a structure that doesn't facilitate how work really gets done.

3. Roles: Agree on Roles and Responsibilities

With the optimal workflows defined, the next step in the process is to determine roles and responsibilities. Which functions are responsible for which activities in the key business processes? A simple framework, such as RACI, can be applied during this step to identify who is responsible and accountable, who's consulted for decision-making, and who is informed for each task. Responsibilities can then be grouped to create job profiles that define each job's specific objectives, activities, decision rights, and required expertise.

4. Organizational Structure: Determining Reporting Relationships

Only after the organization's roles are defined can reporting relationships be determined. Which roles oversee which? Which roles work closely together and should therefore be part of the same team? How many roles can one individual oversee successfully? How can support staff be best utilized across roles? By answering these questions, we can define the reporting lines that connect roles.

5. People Practices: Build Systems to Drive Behavior

Finally, the last step is putting in place the people practices that drive appropriate employee behaviors. How will the organization recruit and select the best candidates to fill the identified roles? How will it set individual performance objectives and measure that performance? How will it engage and train employees on an ongoing basis? At the end of the day, organizational design isn't just about putting in place the best structure. It's also about populating that structure with capable employees who know what's expected of them and are motivated to achieve.

These five simple steps provide a framework for successful organizational design. Too often leaders start backwards. They begin by drawing boxes on a chart before defining what the organization wants to achieve and identifying the best way to get the work done. The worst case is an ineffective structure, a loss of employee engagement, and poor performance. In contrast, when we recognize that form follows function in organization design, we dramatically reduce risk and build an organization that is fully aligned to its goals.

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